The Australian dollar began the week in negative territory. The AUD/USD trades at 0.7081 in North America, which is 0.40% lower than the previous session. The Aussie has enjoyed a great week with gains of 2.0%.
Australian retail sales will fall
After two consecutive declines, Australian consumer spending increased 1.4% y/y by November. With a forecast of -0.3%, markets are expected to experience another slump in December. A drop in retail sales could mark the third decline in four months, and could impact the Australian dollar.
After a 25-bp rise in December, the RBA will meet on February 7th and will likely raise rates by 25 basis point. The cash rate is currently at 3.1%. Markets expect a peak of 3.6%. This would translate into two additional 25-bp increases. Although the central bank has increased rates dramatically, inflation is still at its peak. CPI rose to 8.4% in Q4 after a 7.3% gain during Q3. However, the aggressive rate-tightening cycle has slowed economic growth. In Q3, GDP fell to 0.6%. This is expected to decrease again in Q4, with GDP forecast to fall below 2.2% by 2023. The decline in house prices and weak business investment are signs of a weak economy. The RBA must consider an uncertain economic outlook to make a decision on whether or not…