From Westpac chief economist Evans with his thoughts on Reserve Bank of Australia policy after the GDP
The report in (very) brief)
- Economic conditions remain uneven and choppy from quarter to quarter
- In Q3, exports (resources and services) were once again the key growth engine
- Business investment and public investment were major negatives
- Housing is responding to low interest rates
- Consumer spending strengthened a little on firmer wage income numbers
- The global backdrop and the income environment remain challenging, with the terms of trade down a further -2.3%qtr, -10.4%yr in the quarter
- Exports are a key growth engine ... as the mining boom pays dividend
- Service exports (education, travel and business services) advance, boosted by the lower AUD.
Implications for Monetary Policy
The Reserve bank will be encouraged by this report
- Growth has lifted
- Growth in annual household spending has been boosted
- Modest fall in the savings rate from 9.4% to 9.0% also points to consumers being prepared to supplement modest income growth to lift the pace of spending
- The Bank will also find the large contribution to growth from net exports provides some encouragement from an employment perspective
- While last year Westpac interpreted the September quarter national accounts as providing a key justification for its forecast of a February rate cut we see no comparable case here
- While markets held a 25% chance of a move in February we expect that as they have time to digest this result those folks favouring another move will be forced to push the timing out to May.
- For our part we remain comfortable with our call that rates will remain on hold in 2016 with downside risks
Strategy for the AUD
- AUD/USD approached the GDP data at 0.7325, consolidating its gains in NY trade. The 0.9% headline was a touch above consensus, producing an AUD/USD bounce to a high of 0.7345. This was a fresh high since 15 October.
- However, within 20 minutes the Aussie was back to 0.7315/20. Given that the details of the report were mostly encouraging and that RBA governor Stevens (speaking in Perth) deemed the data "not a bad outcome" and a touch higher than the RBA had expected, the AUD pullback suggests some fatigue after its sharp rally.
--
AUD today:
