Australian retail sales unexpectedly fell in March and job advertisements dropped for a second month, sending the currency lower as traders see a 50-50 chance the central bank will resume cutting interest rates tomorrow.
Sales declined 0.4 percent to A$21.9 billion ($22.5 billion) from a month earlier, when they rose 1.3 percent, the Bureau of Statistics said in Sydney today. That was the first drop of the year and compared with economists’ estimates for a 0.1 percent gain. An Australia & New Zealand Banking Group Ltd. report showed help-wanted notices fell 1.3 percent in April.
“The retail data and the decline in job ads should be consistent with an interest rate cut from the Reserve Bank tomorrow,” said Joshua Williamson, a senior economist at Citigroup Inc. in Sydney who predicted the 0.4 percent drop and expects the central bank to lower borrowing costs.
Prime Minister Julia Gillard, whose Labor Party is 10 percentage points behind the opposition in public polls ahead of a Sept. 14 election, faces an economy weighed by sustained currency strength. Weakness in China’s economy, as shown by a services index today, is damping commodity prices and curbing returns from Gillard’s new tax on mining profits.
The local dollar traded at $1.0283 at 3:23 p.m. in Sydney from $1.0297 before the release. Traders are pricing in a 53 percent chance the Reserve Bank of Australia will reduce the benchmark rate to a record-low 2.75 percent tomorrow, according to swaps data compiled by Bloomberg.
Governor Glenn Stevens and his board cut rates six times from November 2011 to December 2012 to buttress the economy. The rate is at 3 percent, matching a half-century low, as policy makers aim to stimulate industries outside of mining, while the sustained strength of the currency is a drag on growth.
Today’s report showed spending on clothing, footwear and personal accessories fell 4.2 percent, and consumers spent 1.5 percent less on household goods. Food retailing rose 0.8 percent, it showed.
Retail sales, adjusted to remove inflation, jumped 2.2 percent in the three months through March from the previous quarter. Economists had forecast a 1.7 percent increase.
“While retail volumes surged in the March quarter, today’s data highlights that the sustained high dollar and competitive pressures are weighing on prices across the economy,” a spokeswoman for Treasurer Wayne Swan said in an e-mailed statement. “There’s no doubt that the persistently high dollar continues to have an acute and widespread impact on prices and profitability across the board, which has been one of the key drivers behind the recent hit to government revenues.”
The central bank lowered borrowing costs by a total of 50 basis points late in 2011 and a further 125 basis points in May, June, October and December last year to help stimulate the economy. It has held borrowing this year, saying there’s evidence rate reductions are beginning to take effect.
Gillard’s ruling Labor party faces a A$12 billion slump in tax receipts that forced the government in December to abandon a commitment to return Australia’s budget to surplus.
Her 30 percent tax on iron ore and coal profits will reap A$800 million in revenue for the year to June 30, down from an October estimate of A$2 billion, according to a Parliamentary Budget Office document released by the Greens party today. In the following four fiscal years, the tax will raise A$3.5 billion less than earlier forecast, it said.
Treasury is working on the assumption of 2.75 percent economic growth for 2012-13 and 2013-14, the Australian Financial Review reported today, without citing anyone. That compares with a forecast in October of 3 percent for both years. Treasury declined to immediately comment on the report.
One of Eight
Australia, one of only eight nations with stable top-level grades from ratings companies Standard & Poor’s, Moody’s Investors Service, and Fitch Ratings, would see its stable AAA grade threatened if the government is forced to weaken its commitment to returning a balanced budget, according to S&P.
Today’s retail report showed sales in Western Australia, a hub of the mining investment boom, rose 0.2 percent in March after gaining 1.7 percent in February. In Queensland, a second resource state, retail sales slumped 0.8 percent, it showed.
China’s services activity slowed in April, according to a report compiled by Markit. The HSBC China Services PMI fell to 51.1 last month, compared with 54.3 in March. An index above 50 indicates an overall increase in services activity.
Elsewhere, Indonesia’s economy grew at the slowest pace in more than two years last quarter as weaker exports and government spending countered gains in consumption and investment. Euro-zone retail sales for March and PMI services for April will also be released.
Australia’s currency, which didn’t rise above 85 U.S. cents between 1990 and 2006, hasn’t dropped below that level in almost three years.
A TD Securities Inc. inflation gauge for April released today showed a 0.3 percent increase from a month earlier and 2.1 percent from a year earlier. The central bank targets inflation of between 2 percent and 3 percent on average.