RBNZ “Hawkish” Move Offers NZD Support, Australian Retail Sales Rose 0.6% During August

Summary:

• RBNZ interest rate hike hawkish.
• Australian Retail MoM met expectations

RBNZ Interest rate decision

The Reserve Bank of New Zealand (RBNZ) increased interest rates by 50 basis points to 3.5%, in line with market forecasts, but also made clear that it was considering raising rates even more.

"NZD is off the overnight highs, but still outperforming after the RBNZ delivered the 50bp hike expected and considered a larger move," says Adam Cole, Chief Currency Strategist at RBC Capital Markets.

The RBNZ stressed the need to "continue to tighten monetary conditions at pace" in its statement. In contrast, the Reserve Bank of Australia (RBA) stunned markets on Tuesday by increasing rates by 25 basis points rather than 50, indicating that its cycle of rate increases was about to come to an end. As a result, the Australian Dollar dropped significantly, and investors bet that the New Zealand Dollar would experience a similar fate.

According to Cole, the RBNZ also recognized the increasing pressure on pricing from a weaker NZD. The recent collapse in the New Zealand Dollar—the worst performing major currency over the previous month—means that import prices will go up, escalating inflationary pressures. This is especially important in light of the present inflationary cycle, which is being caused by constrained supply chains and rising commodity costs. Therefore, the currency will continue to be important in predicting future changes in interest rates.

Australian Retail Sales Meets market expectations

Australian MoM retail sales data for august met market expectations, coming in at 0.6%. Unrevised from the flash figures and following a final 1.3% increase in July, retail sales in Australia increased by 0.6% mum to a brand-new record amount of AUD 34.88 billion in August 2022. This was the seventh consecutive month that retail sales rose, with increases in both food retailing (1.1% vs. 1.2%) and cafe, restaurant, and takeaway sales (1.3% vs. 1.8% in July). Additionally, department store sales increased for the second consecutive month (2.8% vs. 3.8%), and sales of domestic products in stores saw their biggest increase since March (2.6%), after declining for the previous four months. Contrarily, other retailing experienced its first decline in six months and the biggest this year (-2.5% vs. 1.6%). Clothing also saw its biggest fall this year, down 2.3% after gaining in the prior 2 months. Sales grew in Tasmania (2.2%), the Australian Capital Territory (1.9%), New South Wales (1.5%), South Australia (1.3%), and Victoria (0.1%), while fell in Western Australia (-0.2%) and Queensland (-0.1%).

Sources: poundsterlinglive.com, fxempire.com