We are in for four weeks of never-ending interest rate speculation after the Reserve Bank left rates on hold today and retail sales figures for August showed that the sales boom continues in Australia.

The Australian Bureau of Statistics reported that, in seasonally adjusted terms, retail sales “increased by 0.7% in August 2007. This follows revised increases of 0.8% in July 2007 and 1.6% in June 2007.” All states and territories had increases in the seasonally adjusted estimate.

In original terms, the stuff stockmarkets and investors use (actual dollars spent, unadjusted), the boom is even more impressive with retail turnover in August 8.3% above that of August 2006. The increase in original terms in the month alone was 2.1%, compared with July 2007. Chains and other large retailers (which are completely enumerated) increased by 1.1%, while the estimate for ‘smaller’ retailers (the sampled units) increased by 3.5%.

That means consumer spending didn’t take too much of a hit from August’s rate rise, or the credit squeeze and financial markets turmoil.

With the credit squeeze now dissipating here in Australia as the banks start a new financial year and bank bill rates stabilise, there are signs the market is now pricing in a rate rise.

Forward interest rate indicators have the overnight cash rate at 6.75% nine months out, with a rate of around 6.60% for December. With bank bill rates around 6.74% for 30 day bills and 6.86% for 90 day bills, the margin continues to decline, pointing to an easing in credit conditions.

It’s also a sign that the money markets are pricing in another rate rise sometime in the next nine months, while some analysts have pencilled one in by the end of the year.

The RBA next meets on November 6 and the chances of a rate rise will hinge on the consumer price and other inflation data due on October 24 (and the Producer Price Index two days before that).

The higher of RBA’s two main inflation gauges stood at 2.8% at the end of the June quarter, near its top of its 2%-3% target range.

Despite the fall in the Aussie dollar in the past 24 hours as the US dollar rallied and gold fell, the rising speculation about a rate rise here will see more upward pressure on the currency: which is a bear point for the broader market which is ignoring the signals.

Investors are too besotted with the resource giants, BHP, whose market cap at well over a quarter of a trillion dollars is larger than the 2008 Federal budget.

Pharmaceutical giant, CSL traded up to $110 yesterday ahead of a three for one split in November, but that surge brought a downgrade from Citigroup on the basis that the price run up had happened too quickly.

The banks also got a kick along: partly from the multi-billion dollar house cleaning by UBS and Citigroup, but more likely the improved outlook for profits from the subprime and credit problems that saw RAMS broken up and the best bits bought by Westpac. That’s seen as a bullish point for the banks (re-intermediation folks) as the banks reclaim much of the business lost to non-bank lenders.

But all these bull points, and another solid day on US markets (the Dow was down by the broader Stand And Poor’s 500 rose, which is a better pointer to the strength on Wall Street) ignore another bit of miserable news from the US housing sector.

It’s been ignored, pushed to the background by the sharp recovery and records of the past three weeks: and any concern is met by the soothing words: “the Fed will fix it with a rate cut”.

Well, no manner of rate cuts will fix the continuing slide in sales of existing homes. New home starts get a lot of the headlines, but they are only around 15% of the sector and yearly trade in US homes. Existing (pre-loved?) account for the rest and it’s sinking. Figures out overnight show that the number of Americans signing contracts to buy existing homes hit the lowest level on record in August.

And what was Wall Street’s reaction? Well the stocks of listed US homebuilders rose for a second day after Citigroup said the industry’s decline has made equities attractive and investors speculated the slump was overdone.

There were 5.1 million unsold homes in the US in August. It would take an awful lot of rate cutting to shift those without sparking an inflationary boom.