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2 Dec 2015
AUD: Australian real GDP data a mixed bag - MUFG
FXStreet (Delhi) – Derek Halpenny, European Head of GMR at MUFG, suggests that the Australia’s real GDP expanded by a larger than expected 0.9% in Q3 after an upwardly revised 0.3% (0.2%) gain in Q2.
Key Quotes
“As a result, the annual rate accelerated from 1.9% to 2.5%. Growth was driven mainly by a 4.6% Q/Q surge in exports, the largest gain since Q3 2000 – and this alone added 1.0ppt to overall GDP growth.”
“While the overall gain is a positive, there are understandable doubts over the sustainability of export growth going forward. The China/EM growth story remains unfavourable and with the BOE, ECB and BOJ all fretting about slowing global demand, the outlook for growth in Australia remains clouded in uncertainty. Exports were also boosted by a bounce after a weather related hit to shipments in Q2.”
“When looking beyond exports though, the data looks a lot worse. Domestic demand fell by 0.5% in Q3, which was the steepest drop since Q1 2009 during the Great Financial Crisis. Australia’s terms of trade also fell by 2.4%, the seventh consecutive decline. That may raise questions over the ability of Australia to move away from mining to non-mining activity going forward.”
“It certainly reinforces the need for the Australian dollar to remain weak. The shift in rhetoric from the RBA suggesting less chance of additional monetary easing has prompted a jump in short-term yields and a jump in AUD/USD. Governor Stevens added to that rhetoric today by describing the situation in Australia since the financial crisis as “quite respectable”.”
“The 2-year swap rate has jumped 24bps since the start of November. Since just prior to the strong jobs report, AUD/USD is over 4% higher. Over the same period iron ore prices are 12.5% lower and since the most recent peak in October, iron ore prices are 25% lower. The rates market has now effectively taken out the probability of more easing. Where can AUD/USD go from here? From a yield perspective, market participants will have to consider RBA tightening – that’s not going to happen and hence we see only downside risks from here for AUD/USD, especially given what’s happening to commodity prices.”
Key Quotes
“As a result, the annual rate accelerated from 1.9% to 2.5%. Growth was driven mainly by a 4.6% Q/Q surge in exports, the largest gain since Q3 2000 – and this alone added 1.0ppt to overall GDP growth.”
“While the overall gain is a positive, there are understandable doubts over the sustainability of export growth going forward. The China/EM growth story remains unfavourable and with the BOE, ECB and BOJ all fretting about slowing global demand, the outlook for growth in Australia remains clouded in uncertainty. Exports were also boosted by a bounce after a weather related hit to shipments in Q2.”
“When looking beyond exports though, the data looks a lot worse. Domestic demand fell by 0.5% in Q3, which was the steepest drop since Q1 2009 during the Great Financial Crisis. Australia’s terms of trade also fell by 2.4%, the seventh consecutive decline. That may raise questions over the ability of Australia to move away from mining to non-mining activity going forward.”
“It certainly reinforces the need for the Australian dollar to remain weak. The shift in rhetoric from the RBA suggesting less chance of additional monetary easing has prompted a jump in short-term yields and a jump in AUD/USD. Governor Stevens added to that rhetoric today by describing the situation in Australia since the financial crisis as “quite respectable”.”
“The 2-year swap rate has jumped 24bps since the start of November. Since just prior to the strong jobs report, AUD/USD is over 4% higher. Over the same period iron ore prices are 12.5% lower and since the most recent peak in October, iron ore prices are 25% lower. The rates market has now effectively taken out the probability of more easing. Where can AUD/USD go from here? From a yield perspective, market participants will have to consider RBA tightening – that’s not going to happen and hence we see only downside risks from here for AUD/USD, especially given what’s happening to commodity prices.”