To the surprise of Australian dollar traders, the Reserve Bank of Australia left interest rates unchanged at 7.25 percent and signaled that despite inflationary pressures, they will probably not raise interest rates again this year as demand growth is expected to moderate.
This stance is validated by the much weaker than expected manufacturing PMI report – which dropped to the lowest level since November 2005. Australian retail sales and building approvals are due for release this evening. The increase in the sales component of service sector PMI suggests that consumer spending should rise, but RBA Governor Glenn Stevens was particularly concerned about the softness of consumer spending, which makes us skeptical of our typically reliable leading indicator for Australian retail sales.