Australia Country Profile - Economy, Currency, Central Bank, Canadian Dollar, CAD

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Introduction

Australia is the 15th largest economy with GDP valued at USD 755 billion, and a population of 21 million. The economy is dominated by services, though agriculture and mining industries play a very important role, with manufacturing trailing as an engine of growth. Commodities make up around 65% of Australia's exports, with Japan and China being the two largest trading partners. The interest rate is at 6.5%, making the Australian Dollar a target for carry trade, in which the yen's low interest rate is used to finance investment in the higher yielding Australian currency. High prices for commodities and carry trade have boosted the value of the Aussie in 2007.

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Australia's Fundamental Indicators and Chart

Monthly Data for December, 2008

Date	EST	Indicator	Actual	Forecast	Previous
12/1	12:30am	RBA Commodity Index y/y	35.0%		35.9% 32.4%
		For November Provided by: Reserve Bank of Australia Commodity Index m/m: -2.7%, pr. -4.6% (rev from -5.1%, Oct), 0.7% (Sep), 2.0% (Aug), 3.6% (Jul), 7.9% (Jun), 6.1% (May), 9.4% (Apr) Commodity prices fell for a third straight month in November, as the price of copper, aluminum, beef and veal, and gold were the largest negative contributors. In Australian dollar terms prices rose 0.5%, as the weak Australian currency kept the measure inflated at record high.
12/1	7:30pm	Retail Sales m/m	0.2%	0.1%	0.2%
		For October (Trends Basis) Official Release: Australian Bureau of Statistics Retail Sales m/m (s.a.): 0.7%, forecast -0.2%, pr. -1.1% (Sep), 0.5% (Aug) Retail Sales y/y (s.a.): 2.0%, pr. 1.6% (Sep), 3.5% (Aug)
12/1	7:30pm	Current Account	-9.7B	-11.2B	-14.0B -12.8B
		3rd Quarter Provided by: Australian Bureau of Statistics
12/1	10:30pm	RBA Interest Rate Statement	4.25%	4.50%	5.25%
		Provided by: Reserve Bank of Australia Official Release: Statement The RBA cut rates by 1%, bringing them to 4.25%, the lowest since December 2001. Though the Australian economy has weathered the financial storm slightly better than other economies, the slowdown is gaining steam. Therefore another large cut in the interest rate was warranted. From the Release: "The Australian economy has been more resilient than other advanced economies, but recent data nonetheless indicate that a significant moderation in demand and activity has been occurring. With confidence affected by the financial turbulence and a decline in the terms of trade now under way, more cautious behaviour by both households and businesses is likely to see private demand remain subdued in the near term. With that outlook, and with capacity pressures now easing, it is likely that inflation in Australia will soon start to fall. Global disinflationary forces will assist in this regard, though the depreciation of the exchange rate means that the decline of inflation to the target could take longer than would otherwise have been the case. Weighing up the international and domestic developments of recent months, the Board judged that a further significant reduction in the cash rate was warranted now, to take monetary policy to an expansionary setting. As a result of today’s decision, the cash rate will be at its previous cyclical low point. Given trends in money market yields, most lending rates should fall significantly and will also reach below-average levels. There has now been a major easing in monetary policy over the past few months. Together with the spending measures announced by the Government, and a large fall in the Australian dollar exchange rate, significant policy stimulus will be supporting demand over the year ahead."
12/2	5:30pm	Services PMI	37.8		42.1
		For November (s.a.) Provided by: Australian Industry Group (AIG) Current Release: PDF (Save Link As...) The services sector contracted significantly faster than in October, as the Performance of Services Index (PSI) fell 4.3 points from 42.1 to 37.8 in November. According to the Australian Industry Group, sales, new orders and the employment subindexes all fell to record lows. From the release: Services sector activity contracted for an eighth consecutive month in November, with the turmoil in global financial markets continuing to batter consumer and business confidence.
12/2	7:30pm	Gross Domestic Product q/q	0.1%	0.2%	0.4% 0.3%
		For 3rd Quarter s.a. Provided by: Australian Bureau of Statistics (ABS) GDP y/y: 1.9%, forecast 1.9%, pr. 2.9% (rev from 2.7%, 2Q), 3.6% (1Q), 4.3% (4Q '07) The Australian government is trying to keep the country out of recession and keep up the 17-year run of continual economic growth. 3rd Quarter GDP was a mere 0.1%, down from 0.3% in Q2. The annual GDP now stands at 1.9%, showing a steady decline over the year. Anticipating further slowdown, the RBA had cut rates 300 basis points in three months. Australia enjoys its proximity to developing nations such as China and India who create the demand for Australian's natural resources and raw materials. With the budget surplus, Prime Minister Kevin Rudd is providing 10.4 billion Australian dollars as a stimulus package and has increased spending in infrastructure. Although the Australian economy is in a better position than most other developed nations in facing the global slowdown, it's Q3 GDP breakdown showed that the figures were kept afloat by a 15% increase in the farming sector. According to the ABS, excluding this factor, the GDP would have shrank 0.3%.
12/3	7:30pm	Building Approvals	-5.4%	0.2%	-5.9% -7.2%
		For October m/m (s.a.) Provided by: Australian Bureau of Statistics (ABS) Approvals y/y: -26.0%, forecast -21.5%, pr. -21.6% (Sep), -8.6% (Aug), -3.7% (Jul), -7.8% (Jun), -0.4% (May), 5.2% (Apr) Building approvals fell 5.4% in Australia in October, which surprised forecasts on the downside. The RBA has been aggressive in cutting rates in order to ease borrowing costs for consumers and potential home buyers. However, with the economy on the ropes and credit tight, home builders do not seem eager to get new permits for new constructions. Its the second month in a row that approvals fell by more than 5%, though September's figure was revised higher to show a 5.9% decline compared to the 7.3% originally reported.
12/3	7:30pm	Trade Balance	2.95B	1.45B	1.25B 1.46B
		For October Release Provided by: Australian Bureau of Statistics Imports m/m: 0%, pr. 7% (Oct), -2.0% (Aug), 4.0% (Jul), -1.0% (Jun) Exports m/m: 7%, pr. 8% (Oct), 6.0% (Aug), -1.0% (Jul), 2.0% (Jun) The Australia trade surplus surprised forecasts on the upside, increased to A$2.95 billion, driven by an increase in coal exports. Exports rose 7% on a seasonally adjusted basis, while imports remained flat. The better than expected result may help to keep GDP growth positive in the 4th quarter, the way a boost in farming helped keep growth positive in the 3rd quarter. Australia will have to worry about the global recession which could affect demand and prices for the country's exports. However with the recent depreciation of the Aussie, Australian exports should remain attractive for foreign buyers.
12/4	5:30pm	Construction PMI	32.0		36.4
		For November Provided by: Australian Industry Group
12/7	12:00am	M2+CD Money Supply y/y	1.7%	1.8%	1.8%
		For November Money supply increased as issuance of bonds and investment trusts rose.
12/8	7:30pm	NAB Business Confidence	-30		-29
		For November Provided by: National Australian Bank Official Release: PDF (Registration Req'd) Bus. Conditions: -17, pr. -11 (Oct), -1 (Sep), -3 (Aug), -5 (Jul), 0 (Jun), 7 (May), 7 (Apr), 7 (Mar), 11 (Feb), 13 (Jan) From the Release: "Business confidence edges down to a new record low (including the 1990/91 recession). Business conditions sharply down again - to levels last seen in late 1992. Forward orders fall sharply (again) to 1991 lows and capacity utilisation falls significantly. Medium term expectations also sharply lower – including lower capital & hiring plans. Survey implies negative growth in domestic demand and non-farm GDP in Q4 2008. NAB’s measure of credit availability suggests little change in credit availability. Confidence down everywhere – as are conditions, with the exception of mining & transport. Global forecasts for 2009 cut to 1¾% (from 2.4%) with sharply lower growth in USA & Europe. Australian GDP forecasts cut due to the lower start point in Q4 2008 and weaker global growth. We now expect growth in 2009 of only 0.5% - implying recession in the non- farm economy (at least). We also expect more fiscal policy action, weaker labour markets and an even more aggressive RBA. We now forecast the RBA to cut rates to 3% in early 2009 (previously 3¾%)."
12/9	5:00am	RBA Governor Stevens Speaks
12/9	6:30pm	WMI Consumer Sentiment m/m	7.5%		4.3%
		For December Provided by: Westpac Melbourne Institute Official Release: PDF Consumer confidence increased in Australia for a second straight month as consumers responded positively to the RBA's effort to bring down borrowing costs, the lower prices for gas and a government stimulus package. It is a welcome sign heading into the holiday season. From the Release: "The Westpac–Melbourne Institute Index of Consumer Sentiment increased by 7.5% in December from 85.5 in November to 92.0 in December. Westpac’s Chief Economist, Bill Evans, commented, "Despite the announcement of a further 1% cut in the Reserve Bank's cash rate, an 18.4% fall in petrol prices and a share market rally in recent weeks, it was not obvious that the Consumer Sentiment Index would have shown such a significant jump. The gloom surrounding the global economy and the associated threat to Australia could have easily overwhelmed all the positives. For instance, last month consumers were responding to a cumulative 1.75% reduction in the RBA's cash rate, a 12.6% fall in petrol prices, and the announcement of the Commonwealth government's $10.7bn fiscal stimulus package, and the Index was starting at a lower base. But it managed a disappointing rise of only 4.3% in November."
12/9	7:30pm	Home Loans m/m	1.3%	1.0%	-2.4% -2.7%
		For October Provided by: Australian Bureau of Statistics The number of home loans granted to build or buy homes and apartments rose 1.3% in October, which beat economists' forecasts. The central bank has moved aggressively to bring down borrowing costs after the credit crunch stalled the economy's growth. The RBA has cut rates by 3% since September, and the government has passed a stimulus package that had consumers feeling slightly more optimistic according to data releases today. A rebound in housing is a welcome sign that may signal that Australia is in a better suited position to deal with its downturn. The Aussie was quiet overnight however, inching up against the Yen and Dollar.
12/10	7:00pm	Inflation Expectations	2.5%		3.3%
		December Survey Provided by the: Melbourne Institute (sub. req'd)
12/10	7:30pm	Employment Change	-15.6K	-15.0K	34.3K
		For November - Seasonally Adjusted Provided by: Australian Bureau of Statistics Official Release: HTML Unemp. Rate (s.a.): 4.4%, forecast 4.4%, pr. 4.3% (Oct), 4.3% (Sep), 4.1% (Aug), 4.3% (Jul) Australia economy shed 15,600 jobs in November and the unemployment rate climbed to its highest level in a year. This piece of data will put pressure on the RBA to continue cutting rates in order to prop up the economy. Both mining extractors and financial firms scaled back their workforce in reaction to global conditions. They are also responding to weak condition at home which have put the economy on the brink of recession. The decline in jobs was the biggest since May. The RBA next meets on February 3rd and is expected to cut rates by 50 to 100 basis points. This should continue to weaken the value of the Aussie as its advantage in interest rate yield continues to shrink.
12/10	7:30pm	Unemployment Rate	4.4%	4.4%	4.3%
12/15	7:30pm	RBA Meeting Minutes
		Meeting Minutes from December 1st Provided by: Reserve Bank of Australia Official Release: Minutes From the Release: "Although the Australian economy had been more resilient than other industrial economies, recent data indicated that a significant moderation in demand and activity had been occurring. With confidence affected by the financial turbulence and a decline in the terms of trade now under way, members thought that more cautious behaviour by both households and businesses would result in private demand remaining subdued in the near term. Given these circumstances and the associated easing in capacity pressures, there would be downward pressure on inflation in Australia over the year ahead. Global disinflationary forces were likely to assist in this regard, though members acknowledged that the depreciation of the exchange rate meant the decline of inflation to the target could take longer than would otherwise have been the case. Members agreed that it was appropriate to shift the monetary policy setting from its current roughly neutral position to one that was clearly expansionary. The Board saw a need for the reduction in the cash rate, and bank lending rates, to be large enough to have a noticeable effect on financing decisions of lenders and borrowers. Members also took account of the fact that a Board meeting was not typically scheduled in January, given that local markets tended to be relatively thin over the summer break and statistical and survey data, as well as liaison information, were less timely. Overall, members judged that the two-month break between meetings was one consideration in favour of a substantial reduction in interest rates at this meeting. Accordingly, members felt that, on this occasion, a reduction of 100 basis points was appropriate and would contribute to supporting confidence among households and businesses. In particular, a reduction of this size would move monetary policy quickly to an expansionary setting. Given trends in money market yields, the Board expected that most lending rates would fall significantly. Members observed that, with the decision at this meeting, there had been a major easing in monetary policy over the past few months. They considered that the setting of monetary policy, combined with the spending measures announced by the Government, which were soon to take effect, and the large depreciation of the Australian dollar amounted to significant stimulus that would support demand over the year ahead. The size of the response to date was judged to be such that a period of assessment of local and overseas events was warranted over the summer."
12/15	7:30pm	Dwelling Commencements q/q	-10.7%	-2.3%	0.2% -3.7%
		For 3rd Quarter Provided by: Australian Bureau of Statistics Official Release: Key Figures
12/16	6:30pm	WMI Leading Index	-0.1%		-1.2% -1.0%
		For October Provided by: Westpac-Melbourne Institute Official Release: PDF
12/17	7:30pm	RBA Bulletin
		Provided by: Reserve Bank of Australia Official Release: Bulletin
12/21	7:30pm	New Motor Vehicle Sales	-5.2%		-0.5%
		For November (s.a) Provided by the: Australian Bureau of Statistics Current Release: Indicator Page Sales y/y: pr. -10.6% (Oct), -8.2% (Sep)
12/22	6:00pm	Leading Index	-0.5%		-0.3%
		For October Provided by: The Conference Board Official Release: HTML PDF Coincident Index: 0.2%, pr. 0.0% (Sep)
12/24	6:00pm	Holiday: Christmas
12/30	7:30pm	Private Sector Credit m/m	0.4%	0.5%	0.6%
		For November Provided by: Bank of Australia y/y: 8.2%, forecast 8.5%, pr. 9.7% (Oct), 10.1% (Sep), 10.5% (Aug), 11.2% (Jul), 11.7% (Jun), 13.4% (May)

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Central Bank Watch - Latest Reserve Bank of Australia Decision

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December
1st, 2008

Actual

Forecast

Revised Form

4.25%

4.50%

5.25%

N/A

Provided by: Reserve Bank of Australia
Official Release: Statement

The RBA cut rates by 1%, bringing them to 4.25%, the lowest since December 2001. Though the Australian economy has weathered the financial storm slightly better than other economies, the slowdown is gaining steam. Therefore another large cut in the interest rate was warranted.

From the Release: "The Australian economy has been more resilient than other advanced economies, but recent data nonetheless indicate that a significant moderation in demand and activity has been occurring. With confidence affected by the financial turbulence and a decline in the terms of trade now under way, more cautious behaviour by both households and businesses is likely to see private demand remain subdued in the near term. With that outlook, and with capacity pressures now easing, it is likely that inflation in Australia will soon start to fall. Global disinflationary forces will assist in this regard, though the depreciation of the exchange rate means that the decline of inflation to the target could take longer than would otherwise have been the case.

Weighing up the international and domestic developments of recent months, the Board judged that a further significant reduction in the cash rate was warranted now, to take monetary policy to an expansionary setting. As a result of today’s decision, the cash rate will be at its previous cyclical low point. Given trends in money market yields, most lending rates should fall significantly and will also reach below-average levels.
There has now been a major easing in monetary policy over the past few months. Together with the spending measures announced by the Government, and a large fall in the Australian dollar exchange rate, significant policy stimulus will be supporting demand over the year ahead."

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