S&P/ASX 200 Index (ASX: XJO) investors have been patiently awaiting the first interest rate cut from The Reserve Bank of Australia for more than four years now.
The last time the RBA lowered rates was way back in November 2020, when the central bank slashed the official cash rate to the historic low 0.10%.
At the central bank's most recent meeting on 10 December, the board left interest rates on hold at the current 4.35%. That's the highest level since November 2011.
As of Friday, ASX 200 investors appeared very optimistic on a February cut. According to the RBA Rate Indicator, money markets have priced in a 95% chance the RBA will ease rates to 4.10% when it next meets on 18 February.
Here's how Australia's latest retail sales data may impact those odds.
What's happening with Aussie retail sales?
According to the seasonally adjusted figures released earlier today by the Australian Bureau of Statistics (ABS), Australian retail turnover fell 0.1% in December.
That's a lot stronger than the 0.7% decline economists had widely expected, and as we'll look at below, it could bolster the case for a February RBA interest rate cut.
December's 0.1% dip in retail spending data follows November's 0.7% growth and October's 0.5% increase.
Commenting on the results, Robert Ewing, ABS head of business statistics, said:
Retail spending held firm following strong growth in recent months with promotional activity stretched across the quarter.
Cyber Monday fell in early December and boosted spending to begin the month, particularly on discretionary items like furniture, homewares, electronics and electrical items.
On a quarterly basis, retail sales increased 1.0% (seasonally adjusted) in the December quarter, exceeding consensus estimates of 0.8% quarterly growth.
"Retail sales volumes rose for the second straight quarter, boosted by continuous promotional activity," Ewing said.
"Sales events throughout the quarter like Black Friday and Cyber Monday saw more discretionary spending on things like furniture, electronic goods and clothing," he added.
The ASX 200 remains down 1.6% at the time of writing as the market assesses the potential impacts of US President Donald Trump's sweeping tariffs on Mexico, Canada and China. But with investors possibly buoyed by rising odds of a February RBA interest rate cut, the ASX 200 has gained 0.4% since the ABS released the December retail sales data.
Will the RBA cut interest rates in February?
ASX 200 investors and mortgage holders will be closely monitoring the RBA's interest rate decision on 18 February.
And the latest batch of retail sales data looks likely to increase the odds that a rate cut will finally come through, as the RBA steers the Aussie economy to a so-called 'soft landing' following years of excess inflation.
According to Capital Economics (courtesy of The Australian Financial Review), the latest retail sales data is unlikely to discourage the RBA from easing interest rates later this month.
Though Capital Economics Australia economist Abhijit Surya noted the RBA may remain cautious.
According to Surya:
There continues to be uncertainty about whether the strong retail trade data reflect a sustained recovery in consumer demand or merely a 'pull-forward' in expenditure in response to emerging patterns of promotional activity.
