Australia Retail Sales Unexpectedly Fall, Imports Drop; Currency Declines

Australian retail sales unexpectedly declined in October and imports slumped to the lowest level since February, sending the local dollar lower for the fifth time in six days.

Store sales fell 1.1 percent, the steepest drop since July 2009, the Bureau of Statistics said in Sydney today, after a revised 0.1 percent gain in September. The median forecast in a Bloomberg News survey of 23 economists was for a 0.4 percent rise.

The report shows consumers reining in spending before the Reserve Bank of Australia last month increased its benchmark interest rate for the seventh time in the past 14 months as it seeks to prevent the economy from overheating. A separate report today showed the trade surplus widened in October, the same month the nation’s currency reached parity with the U.S. dollar.

“Households were hunkering down in anticipation of the November rate hike,” said Michael Turner, an economist at RBC Capital Markets Ltd. in Sydney. “The trade surplus was driven by a fall in imports, which fits the picture as consumer goods imports were lower” and “plays to the RBA on hold in the near future.”

The local currency declined after the report, falling to 96.41 U.S. cents at 1:29 p.m. from 96.62 just before the data were released.

Today’s reports add to the case for the RBA to keep the overnight cash rate target unchanged next week at its last meeting of the year. Policy makers’ first gathering of 2011 is scheduled for Feb. 1.

Rate Increases

RBA Governor Glenn Stevens has raised rates to 4.75 percent from a half-century low of 3 percent in October 2009 to contain an expected acceleration in inflation as a mining investment boom stokes the economy.

Tighter monetary policy helped spur a 7.4 percent gain in the currency against the U.S. dollar this year, the second best performer among the 16 major currencies.

Today’s trade report showed the surplus widened to A$2.63 billion ($2.53 billion) from a revised A$1.81 billion surplus in September. Total exports rose 1 percent to A$24.3 billion in October and imports fell 3 percent to A$21.7 billion.

Australian business confidence fell for a second month in October as conditions deteriorated to the weakest in more than a year on declining profitability for retail and construction companies, according to a private survey released Nov. 9.

Today’s retail report showed spending at cafes and restaurants declined 4.8 percent and consumers spent 4.6 percent less on clothing and footwear. Consumers spent 0.5 percent more on household goods than a month earlier, it showed.

Factories Contract

A release yesterday showed Australian manufacturing contracted in November for a third month as the nation’s surging currency eroded demand for exports and higher borrowing costs curbed consumer spending.

The central bank raised rates on Nov. 2, saying Australia’s economy is on the verge of a “a large expansionary shock” as shipments of resources to China boost trade and help lower unemployment. A period that saw a “moderation” of inflation “is probably now close to ending,” it said.

The economy expanded at half the pace economists forecast in the third quarter, growing 0.2 percent from the earlier period, the worst performance since a contraction at the end of 2008, a government report showed yesterday. The median forecast in a Bloomberg survey of 21 economists was for a 0.4 percent gain.

To contact the reporter for this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editor responsible for this story: Chris Anstey in Tokyo at canstey@bloomberg.net

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