Hardly anyone is talking about Australia that appears to be sailing ahead very calmly with a very decisive approach to monetary policy. Australia was one of the last countries to get hit by the financial crisis, so was one of the last to recover. Mining towns like Perth saw the brunt of the economic downturn with many people losing jobs and simply having to diversify skills. It has been a few years on and the Australian economy is bouncing back.
This recovery has been partly due to the RBA’s effort to stimulate the economy by cutting the Australia interest rates aggressively, in just over 2 years the rates have come from 3.5% to 1.5%. The market has remained bearish on the Australian Dollar into every RBA meeting, most G7 countries have their rates under 1%, I won’t be surprised to see the RBA favour another rate cut. Figures however don’t lie. Australia has shown strong GDP growth rate of 2.4% annually, despite a slight fall in net exports. The mining sector is also the strongest GDP contributor increasing over the quarter from AUD28.3BN to AUD29.3BN, a positive sign that the economy can expect more growth.
Let’s face reality, all the above is great but none of it matters if the Central bank remains desperate to devalue the currency by cutting the Australia interest rates, a cheaper currency boosts exports, with falling net exports, it will be wise to keep a loose monetary policy. The 6th of June will be interesting, as the RBA meets again, guidance is likely to stay the same but any hint of further cuts will send the Aussie south once more.