AUD and the RBA

The Australian dollar is a key variable in the RBA’s interest rate equation. The level of AUD has broad implications across the Australian economy and becomes even more significant in light of an anticipated peak in mining investment later this year. Accordingly, the recent slide in AUD, which gathered momentum today after the commodity currency broke through a key support zone around 0.9680 against the US dollar, has taken some pressure off the RBA to cut rates in the near-term (the bank’s next meeting is next week).

A high AUD hurts Australia’s manufacturing and trade-exposed sectors. Yet, the Australian economy cannot afford this disadvantage at a time when non-mining sectors of the economy are expected to pick-up the slack left behind by the resource sector. Hence, if the Australian dollar were to rebound back towards parity, or even higher for that matter, the RBA may be forced to cut interest rates sooner than expected. At present, we aren’t expecting the RBA to cut the official cash rate until later in the year, but this assumes AUD doesn’t strengthen too much.

Another rate cut is expected… but not just yet

The basis for our rate cut call later this year focuses on Australia’s transition away from mining investment. Will it be bumpier than expected? While we see strength in Australia’s housing sector and some other parts of the economy, it may not be enough to replace the loss to GDP from falling mining investment. China’s transitioning to a lower, albeit more sustainable, level of growth and exports are susceptible to a push higher in the Australian dollar. At the same time, a lack of consumer confidence is severely restricting growth in retail exposed sectors of the economy.

Nevertheless, tomorrow’s private capital expenditure report will be closely watched. A larger than expected increase in non-mining CAPEX intentions would take some pressure off the mining sector. On the flip side, weak private expenditure and a sudden rebound in the Australian dollar may be enough to force the RBA to cut rates sooner than expected.

Источник: Forex.com

29.05.2013