Australia: Strong GDP buys the RBA more time - AmpGFX

Greg Gibbs, Analyst at Amplifying Global FX Capital, suggests that they had noted increasing risks to the Australian economic outlook that might have seen the RBA adjust from a distant tightening bias (the next move in rates is expected to be up although not for some time) to a neutral bias acknowledging that a rate cut was back on the table.

Key Quotes

“We noted that external risks were increasing, including weaker emerging market assets, undermining the growth outlook for these countries, and raising the risk of contagion.  And the increasing likelihood that the US administration will escalate its trade war with China, directly impacting Australia’s largest trading partners.”

“We also noted the ongoing and potentially accelerating slowing in the Australian housing market and some out-of-cycle increase in mortgage rates, and greater political uncertainty in Australia.  There were some tentative signs that the business confidence was deteriorating from strong levels.”

“However, the very strong GDP growth data for Q2 (0.9%q/q, 3.4%y/y) suggests that the economy has momentum and has bought the RBA more time to assess the growing threats to growth.”

“The RBA has forecast GDP growth running at a little above 3% for this year at next.  The GDP data on Wednesday showed growth annualized at 4.1% in the first half of this year, so it is well on the way to exceeding this forecast.”