Retail figures out today are expected to show that spending is still growing but at a subdued rate amid weak consumer confidence.
Retail sales are forecast to have risen 0.4 per cent in September, after lifting by the same amount in August, seasonally adjusted.
Westpac economists said monthly trend growth has dropped to a pace that is soft by historical standards.
“Consumer sentiment had a shakier month in September, knocked lower by renewed financial turmoil and concerns about the economic outlook,” the bank stated.
“However, private sector surveys continue to show a sustained lift in conditions across consumer-related sectors.”
The Westpac/Melbourne Institute index of consumer sentiment fell 5.6 per cent in September to 93.9 points, well below the 100 point level and therefore indicating a growing number of economic pessimists.
Westpac chief economist Bill Evans said the solid fall was not surprising considering the recent spate of disappointing economic news and heavy falls on financial markets.
“We were somewhat puzzled by the surprise increase in the index last month of 7.8 per cent and there was always likely to be some correction this month,” he said.
The cool consumer climate hovers as the Australian dollar edged higher after the Reserve Bank left interest rates unchanged at a record low of 2 per cent on Tuesday, the sixth month in a row.
However, the RBA hinted it might be tempted to make a cut soon.
At 7am (AEDT) on Wednesday, the currency was trading at 71.98 US cents, up from 71.95 cents on Tuesday.
BK Asset Management’s Boris Schlossberg said this boosted the Aussie, which hit above 72 US cents in late Asian trade.
“In its communique, the RBA sounded a decidedly more hawkish tone, noting that financial market volatility had improved over the past month,” he said.
The central bank also dismissed concerns about the recent rise in mortgage rates, and “insisted that it was within the target range and saw no threat of disinflationary pressures”, he said.
Schlossberg said the RBA discredited almost all the arguments of Aussie bears, suggesting rates could remain on hold for the foreseeable future unless economic conditions deteriorate rapidly.
“One key reason for their lack of urgency is the low exchange rate… [which] is helping to rebalance the economy from mining to more services-led growth,” he said.
But Schlossberg warned that next week’s unemployment figures will be crucial.
“If joblessness accelerates markedly, the market will begin to price in the prospect of easing for December,” he said.
AAP
