There’s been quite a bit of talk in the media of late about increasing cases in Australia, which has gotten many worried the county will return to lockdowns.
It led to the suspension of flights between Melbourne and Auckland in the middle of negotiations to set up a trans-Tasman bubble. In parallel, risk appetite has taken a turn for the worst.
However, a closer look at the numbers shows that well over 80% of the new cases are concentrated in the state of Victoria. In fact, only one other state – New South Wales – reported cases.
For sure, a hotspot of cases is something to be worried about in terms of potential spreading. But Australia remains largely free of COVID cases, especially in its larger, more commercially relevant regions.
On top of that, the majority of cases have been traced to overseas contagion.
How to Revive Commerce
That last part is a matter of concern for the retail sector in Australia and might keep the AUD under pressure.
If the government is worried about contagion from foreign visitors, then travel restrictions are likely to remain in place. Foreign tourism represents less than 1% of the nation’s GDP. But, people traveling from overseas for other reasons – in particular China – represent a substantial part of the retail market.
Foreign students contribute over $37B to the economy in just education. There are entire shopping districts in Sydney and Melbourne catering to travel shoppers.
As long as travel restrictions remain in place, that’s a substantial amount of foreign spending that is missing from the economy. And it’s certainly enough to potentially weaken the AUD.
In their latest policy statement, the RBA took great pains to point out the uncertainty of forecasts “especially from June onward”.
CPI change projections for this year cover a range from -1.0% to 2.1%. But, presumably, consumer demand has to increase in order to push prices higher.
We don’t have personal savings data yet from Q2. However, already in Q1 – when the pandemic was well underway – there was a significant increase in saving and shying away from consumer spending.
With a sputtering economy and low inflation, the RBA might be tempted to ramp up easing. More investors could increase bets that the AUD will weaken in the future due to rate cuts or more asset purchases.
Retail sales data might give us some advance warning of that scenario.
What We Are Looking For
Expectations are for June retail sales to show an increase of 16.3%. This would be the same as reported last month.
Last month the data disappointed, coming in at less than half of what analysts had expected.
Retail sales have whipsawed lately. They spiked higher as people panic-bought ahead of the expected lockdowns, then crashed while stores were closed in April.
The increase in May recovered all the lost territory and then some. It might be that analysts are once again disappointed as retail sales return to a more normal growth range.