The Australian dollar hovered around $0.70, near multi-week highs, after stronger-than-expected household spending data underscored resilient domestic demand ahead of the Reserve Bank’s policy meeting next week. Household spending rose 0.8% in June, sharply above the 0.2% forecast, led by continued growth in discretionary outlays. On an annual basis, spending accelerated to 6.0%, also beating expectations.
The figures bolstered the central bank’s view that consumer activity remains robust despite subdued sentiment. Even so, recent softer inflation readings and a cooling housing market have reinforced expectations that the Reserve Bank will keep its cash rate on hold at 4.35% next week. Markets are also assigning a low probability to a rate hike in September, while pricing roughly a 50% chance of an increase in November, contingent on third-quarter inflation coming in stronger than anticipated. Investors are now looking to this week’s final PMI readings and trade balance data for additional insight into the economy’s underlying momentum.
