The latest quarterly GDP numbers from Australia hit the market last week coming in under analysts’ expectations, fuelling speculation that we may see an Interest rate cut form the RBA sometime next year. Interest rates have been on hold in Australia at 2.5% since August 2013.
GDP figures for the September quarter came in at 0.3% against a consensus of 0.7% amidst growing fears that the economy is having trouble adjusting as the mining boom begins to wind down.
Matthew Circosta, an economist at Moody’s Analytics noted “It’s a disappointing performance and there are a lot of challenges facing the domestic economy. The real rate of GDP growth is slowly, and you’ve also got the nominal measures of GDP growth slowing as well with the terms of trade down, corporate profits weakening and household incomes sluggish,”
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Deutsche Bank released a report on Monday called “Australia: Change of Call,” which predicts that the Australian central bank will cut Interest rates by 50 basis points to 2% next year after earlier forecasting that there would be no changes in rates
“After forecasting in early November 2013 that the cash rate would remain at 2.50 percent all through 2014, 2015 and H1-2016, we have in recent months been highlighting the risk of lower interest rates in 2015,” wrote Adam Boyton of Deutsche Bank.
The Australian dollar tumbled last week to US83.11 cents down from US85.02 cents a week earlier and touching its lowest level since July 2010 as disappointing data out of Australia and China as well as a resurgent US economy sparked a huge selloff.
In what is starting to sound like a famous theatrical line about the Australian dollar being overvalued RBA governor Glen Stevens mentioned last week in his latest speech that,
“The Australian dollar remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices in recent months. A lower exchange rate is likely to be needed to achieve balanced growth in the economy”.
Concerning China, governor Stevens sounded a little more positive and noted that,
“Growth in the global economy is continuing at a moderate pace. China’s growth has generally been in line with policymakers’ objectives. While weakening property markets present a challenge in the near term, economic policies have been responding in a way that should support growth”.
Explaining the benefits of a lower Australian dollar Treasurer Joe Hockey also weighed in on the argument and mentioned last week that a falling Australian dollar will help offset the damage of declining national income from abroad.
“It helps to cushion the economic impact from fall terms of trade,” Mr Hockey told reporters in Canberra.
“A lower exchange rate is an important driver for rebalancing growth across the economy.”
The final nail in the coffin for the Aussie dollar’s demise last week was the stellar Non-farm payrolls number from the US on Friday which came in way above Analysts’ expectations.
The figure came in at 321,000 against a consensus of 230.000 showing the American employment market is powering ahead and giving the US currency a substantial boost against most major currencies including the Australian dollar to round off a week that the local currency would like to forget.