Australian dollar jumps to six-week high, driven by retail sales and company profits



Posted

June 04, 2018 18:48:46

The Australian dollar jumped to a six-week high (76.3 US cents) thanks to some better-than-expected company profit and retail sales figures.

Key points:

  • Retail sales rose 0.4pc in April, driven by the hospitality industry
  • Company operating profits jumped 5.9pc in the March quarter
  • The Australian dollar jumped to a six-week high of 76.3 US cents

The nation’s retail turnover lifted 0.4 per cent to $26.6 billion in April (seasonally adjusted), against expectations of a 0.3pc increase.

It was driven by cafes, restaurants and take-away (+1.3pc), according to the latest data from the Bureau of Statistics (ABS) — but was offset somewhat by lacklustre department store (-0.9pc), clothing, footwear and personal accessory sales (-0.8pc).

“Some of this weakness could prove temporary as it may partly reflect shoppers delaying the purchasing of autumn clothes following the unusually hot weather in some capital cities in April,” said Capital Economics’ Kate Hickie.

Company gross operating profits rose 5.9 per cent in the March quarter, boosted in particular by the mining sector, the ABS also revealed.

In addition to being a key business indicator, this result is nearly double what the market had expected (+3pc).

The local currency quickly climbed to 76.3 US cents (6:00pm AEST), which is a hefty 0.8 per cent gain throughout the day (up from 75.67 US cents).

It also rose to 57.09 British pence (+0.8pc), 65.22 euro cents (+0.6pc) and 83.55 Japanese yen (+0.9pc).

Non-mining states in the lead

Expectations for retail sales weren’t high, given the result was completely flat in the previous month (March), and was particularly weak during December (-0.5pc) and January (+0.1pc).

One clear trend is that internet sales continue to go from strength to strength.

“Online retail turnover contributed 5.4 per cent to total retail turnover in original terms in April 2018, a rise from 5.1 per cent in March 2018,” the ABS said in a statement.

“In April 2017 online retail turnover contributed 3.4 per cent to total retail.”

There seems to be a divide between mining and non-mining states, said NAB’s chief market economist Ivan Colhoun.

“By state, trend retail sales growth remains strongest in the non-mining states, led by Victoria and NSW,” he said.

Retail turnover in the two largest states increased 0.4 per cent each.

He also noted the big mining states, Queensland (+0.1pc) and Western Australia (flat) are “yet to see a significant pick up in retail sales”.

A boost in mining profits

“Mining profits led the way (+11pc), as expected … on the back of higher commodity prices and increased sales,” said Westpac senior economist Andrew Hanlan.

“The main surprise was non-mining profits, up 3.4 per cent (versus expectations of a slight 0.5 pc increase), with strength in the period evident in construction, manufacturing, retail, as well as a partial rebound in professional business services.”

Business inventories lifted by a stronger-than-expected 0.7 per cent in the March quarter (seasonally adjusted), after rising by a tepid 0.2 per cent in the December quarter.

This was driven mainly by wholesale trade inventories, which saw a 1.2 per cent lift over the December quarter.

By sector breakdown, mining inventories (-1.7pc) declined, following last quarter’s hefty increase.

Retail trade (-1.8pc) and food and accommodation (-1.2pc) also fell since the previous quarter.

Caution ahead

The retail and business indicator (company profit and inventory) are all components of this Wednesday’s GDP figures.

Economists from Westpac, ANZ and NAB have since upgraded their economic growth forecasts slightly.

On current projects, Reuters-polled economists predict Australia’s economic growth will lift by 0.8 per cent in the March quarter — which works out to be an unimpressive 2.7 per cent increase in annual terms.

Before then, the Reserve Bank will make its interest rate decision on Tuesday.

It’s almost certain the RBA will announce that rates will remain on hold at the record-low 1.5 per cent for the 20th straight month.

Despite the better-than-expected retail figures, ANZ’s Joanne Masters said: “we remain cautious about consumer spending, particularly for discretionary items, given the slowdown in the housing market and high petrol prices.”

Ms Hickie (Capital Economics) provided a similarly dour outlook.

“Nevertheless, with household budgets still under pressure, we continue to expect consumption growth to weaken this year.”

She expects “the annual rate of consumption growth to slow from about 3 per cent in the first quarter to around 2 per cent by the end of the year”.

Some of the factors at play include household finances “still under pressure from low wage growth”, “rising petrol prices” and “a slowing housing market”.

Topics:

business-economics-and-finance,

economic-trends,

retail,

mining-industry,

australia



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