Retail sales fall 0.6% as consumers see inflation eroding buying power

The Australian Dollar (AUD) is showing signs of strengthening against the US Dollar (USD) as of the latest trading on Friday. This upward movement comes as a result of remarks made by the Reserve Bank of Australia’s (RBA) Assistant Governor, Chris Kent. In a recent interview, Kent highlighted that interest rates are currently restrictive and effective but cautioned that inflationary risks continue to be high.

This statement has left the door open for further monetary tightening in the near future, thereby boosting the expectations of a tightening move at the September meeting. Earlier this week, the RBA had opted for a hawkish hold, with Governor Michelle Bullock stating that the committee was waiting for more information before making any decision to increase interest rates.

This shift in sentiment has contributed to the bullish stance on the AUD/USD pair, which is currently trading around 0.7070. On the other hand, the US Dollar (USD) has been experiencing a decline in value against its main counterparts. This downward trend is attributed to the release of July’s US Retail Sales figures on Thursday, which showed moderating price pressures.

The data was softer than expected, following a benign Consumer Price Index (CPI) report earlier in the week. The decline in the July Nonfarm Payrolls data released last Friday has added to the pressure on the USD, leading to hopes that the Federal Reserve (Fed) will not hike interest rates in September. The focus of the trading day on Friday will be on the US Retail Sales Report.

Analysts predict that private consumption was the primary growth driver in Q2, and the July data will be the first concrete evidence of whether this trend continued into late summer. The market consensus anticipates a 0.1% rise in retail consumption in July, following a 0.2% increase in June. The Retail Sales data, published by the US Census Bureau, measures the total receipts of retail and food stores in the United States.

The monthly percent changes reflect the rate of changes in such sales. A high reading is generally seen as bullish for the USD, while a low reading is considered bearish. The data is adjusted for seasonal variations and holiday differences, but not for price changes. Strong sales figures are expected to boost the USD, but external factors such as weather conditions may distort the data and present a misleading picture.