Australian retail sales suffered their biggest fall in a year in February as higher interest rates ate into consumers' spending power, a surprisingly weak result that cast doubts on chances of an interest rate hike next week. The Australian dollar shed half a cent while interbank futures edged up as investors pared chances of a further rate rise from the Reserve Bank of Australia (RBA) at its policy meeting on April 6.
Retail sales fell 1.4 percent from January on a seasonally adjusted basis, versus forecasts for a 0.2 percent rise. Other data on Wednesday showed approvals for new homes also surprised by dropping 3.3 percent in February, largely due to another big fall in apartment buildings. Private credit was the only figure to match expectations, rising 0.4 percent from January. Also, a private sector index showed a strong jump in house prices in February, backing the RBA's view that the housing sector was shaping up as an area of concern as the economy accelerates.
Interbank futures are pricing in a 54 percent chance of a 25-basis point hike to 4.25 percent next week, down from around 60 percent before the data was released. The implied probability fell to 66 percent from 75 percent beforehand. The RBA raised the cash rate in March by 25 basis points, having already hiked it by 75 basis points between October and December last year as the economy rapidly recovered from the global downturn. But it shocked markets by skipping a widely expected increase at its February meeting, citing global risks such as high debt levels in some countries.