When considering commodity currencies, we tend to focus on exports as they typically have the largest impact on currency fluctuations.
However, we are in unusual circumstances.
For now, currency moves driven by monetary policy are more likely to be determined by changes in consumer demand. Consumer demand is the precursor to inflation and a necessary function of economic reopening.
Retail sales trends are one of the best measures and are closely followed by central banks.
The Australia Situation
COVID cases in the State of Victoria continue to rise, concentrating well over 90% of the infections in the country. Community spread has taken hold in Melbourne, despite a virtual shutdown of the city
This prompted PM Morrison to delay reopening parliament by several weeks. Progress on reopening the rest of the country is on hold, despite the lack of cases.
In any case, consumer demand remains healthy when averaged out, but the concentration in certain sectors shows a worrying trend.
DIY and grocery sales are leading the increases, suggesting that many Australians are expecting to be spending more time at home.
What We Are Looking For
After rushing up an unprecedented 16.9% last month, expectations are for June retail sales to increase a further 7.1%. Total retail spending among Australians is now higher than it was ahead of COVID.
Earlier today, Governor Lowe changed his stance on future rates, suggesting the possibility of cutting rates to 0.1% at a future meeting.
Until now the RBA had set 0.25% as its lower bound. But Lowe did stress that he remains of the opinion that lower rates would be of little benefit.
South Africa’s First Wave
South Africa has gone more than 14 days since a new record in COVID cases. This is raising the hope that maybe they’ve finally hit the peak.
However, it’ll be several weeks until that can be confirmed, and even longer before mitigation measures can be lifted.
The extensive grey market in South Africa makes consumer retail surveys somewhat unreliable. This is particularly true now with the COVID restrictions on formal shopping venues.
South African retail was already in difficulty before COVID, complicating the ability of retailers to handle the current crisis.
What We Are Looking For
Expectations are for June retail sales to fall by -0.5%, compared to 2.3% growth in the prior month.
May’s retail sales were likely distorted by an increase in buying as South Africa eased some of the initial restrictions on movement, only to reimpose them as cases continued to rise.
Projections indicate that annualized retail sales growth will come in at 1.6% compared to 2.7% in the prior month, breaking a three-month acceleration streak.