The central bank of Australia is trying to guide the economy through a period of transition between resource-fuelled growth and an economy supported by other drivers. Judging by the Q4 employment figures, it appeared at first as if the economy was managing this period of transition very well. However, the Secretary of the Treasury later described the strong employment gains over this period as being the result of “technical issues”.
The RBA appears to be of two minds regarding policy. It welcomes a cheaper currency as providing a boost to parts of the economy exposed to international pressures. Yet it says that the currency is merely a reflection of lower commodity prices, and is reticent to ease interest rates again due to rising private sector credit and home loans. In his semi-annual Parliamentary testimony, Governor Stevens indicated that the bank maintains a bias toward easing due to a benign inflation backdrop, but that there is no rush to cut rates further.
With uncertainty remaining regarding the global economic backdrop, it is hard to call a trough in commodity prices or by extension the Aussie dollar yet.
However, a brighter outlook for commodity demand by year-end should see a recovery to 0.74 versus the USD.
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