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Australia dollar falters as weak retail data mutes rate hike chatter

[SYDNEY] The Australian dollar stumbled on Thursday after a second straight monthly fall in retail sales highlighted the need for interest rates to remain at record lows for some while yet.

Thursday's data from the Australian Bureau of Statistics (ABS) showed retail sales dropped 0.6 per cent in August, confounding expectations for a 0.3 per cent increase. July was also revised down to show a 0.2 per cent fall.

The 0.8 per cent slump in July and August is the biggest back-to-back fall since October 2010.

The Australian dollar slipped to US$0.7824 immediately after the release, from a one-week high of US$0.7875 set on Wednesday. It last held at US$0.7827.

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The Reserve Bank of Australia (RBA) has long feared ballooning debt in Australia's red-hot property sector was pinching consumers' ability to spend elsewhere in the economy.

It expects the country's A$1.7 trillion (S$1.8 trillion) economy to accelerate at 3 per cent over the next two years, although economists see slim chance of achieving that.

"The weakness in retail sales supports our long-held view that a slowdown in consumption growth is one reason why the RBA won't raise interest rates at all next year," said Paul Dales, chief economist at Capital Economics.

"The outlook isn't encouraging either, with household finances continuing to be squeezed by weak wage growth and the full effect of higher energy bills yet to be felt."

Across the Tasman Sea, the New Zealand dollar edged down to a more than one-month low of US$0.7146. It last traded at US$0.7155.

The kiwi is currently heading for its second straight weekly loss, partly on a rising US dollar and election-related uncertainties at home.

REUTERS