Australian retailers have spent much of 2026 reading mixed signals. Interest rates have risen three times since the start of the year, inflation is still above the Reserve Bank’s target band and consumer sentiment has swung from month to month.
Underneath those headlines, though, the broader economy has been steadily gaining ground, and that could give the sector more room to manoeuvre heading into the Christmas trading period.
Growth has picked up over the financial year
The Australian Bureau of Statistics reported that GDP grew 0.4 per cent in the June quarter and 2.1 per cent over the year. Across the 2025-26 financial year as a whole, the economy expanded by 2.4 per cent, faster than in either of the two previous years, with service industries doing much of the lifting.
Business investment has been another bright spot. According to Treasurer Jim Chalmers, new private business investment reached 12.7 per cent of GDP last financial year, its highest share in a decade, supported by data centres, renewable energy projects and aircraft. A strong investment pipeline tends to underpin jobs and incomes across construction, technology and services, and those workers are shoppers too.
Households have also added a little to their buffers. The household saving ratio rose to 6.5 per cent in the June quarter, up from 6.4 per cent.
Shoppers are still spending
The most encouraging data for the sector comes from the ABS Monthly Household Spending Indicator. Spending rose 1.1 per cent in July, the third monthly increase in a row, and was 7.0 per cent higher than a year earlier in current price terms. All nine spending categories grew during the month.
Clothing and footwear led the way with a 1.6 per cent lift, followed by recreation and culture at 1.5 per cent. Discretionary spending was 7.8 per cent higher than in July 2025, a sign that households are still prepared to spend on non-essentials when the value is right. These are current price figures, so part of the growth reflects higher prices rather than more items in the basket, but the direction is a welcome one.
The labour market is adding support. Employment rose by around 39,000 people in August and the participation rate climbed to 67.1 per cent, close to its record high. Unemployment edged up to 4.6 per cent as more people joined the workforce, a level RBA Governor Michele Bullock has suggested sits within a range that could help ease price pressures.
A firmer Australian dollar helps import-heavy retailers
For many retailers, the exchange rate matters as much as the cash rate. Much of the apparel, electronics, homewares and toys sold in Australia is sourced offshore and invoiced in US dollars, so movements in the Aussie flow straight through to landed costs.
The Australian dollar was buying just over 70 US cents in late September, according to the RBA, compared with an average of close to 64 US cents through 2025. Analysts have linked the move to Australia’s relatively high interest rates, firm commodity prices and periods of US dollar softness. That difference adds up across every container of stock ordered from overseas, giving retailers more flexibility to protect margins, sharpen promotional pricing or reinvest in stores and online experience.
Currency markets can shift quickly, which is why many retail finance teams now keep an eye on AUD/USD alongside their sales dashboards. Rate decisions, commodity prices and global data releases all move the pair, and the same drivers are followed daily by participants in forex trading. For retailers, the practical step is understanding how exchange rate moves feed into buying costs, then planning order timing and any hedging with their bank or treasury adviser.
Interest rates remain the key variable
The Reserve Bank’s monetary policy board meets on September 29 with the cash rate target at 4.35 per cent. The big four banks all expect a 25 basis point increase to 4.60 per cent, with headline inflation at 3.5 per cent in July and the trimmed mean at 3.6 per cent, both above the 2 to 3 per cent target.
A higher cash rate would add to the load on mortgage holders, but it also tends to support the Australian dollar, which partly offsets import costs for retailers. In August, the RBA noted that the economy appeared to be slowing as expected, so the wording of the accompanying statement will be read closely for clues on how near the tightening cycle is to its peak.
What it means for retailers
Myer executive chair Olivia Wirth has said the department store group expects consumer behaviour to remain volatile over the next 12 months, and that is a fair read for much of the sector. Even so, steady growth, rising household spending, a firmer currency and a labour market that is still absorbing new workers point to conditions that are more supportive than the rate headlines alone suggest.
Retailers that keep inventory lean, track their import costs closely and give shoppers clear value are well placed to make the most of that extra breathing room as the peak season approaches.
