Last week we talked about higher corporate profits, lower GDP and very poor personal
savings and wage growth. These are key benchmarks to monitor the ASX and Australian
business life on a whole. Today we will explore a different set of metrics as we continue to
access the health of Australian investment potential.
Higher FDI Commitments To Australia
FDI has been fairly level since 2008, roughly $50 Billion AUD. The FDI inflow was extremely
low in 2015, just under $30 Billion AUD. The latest figures from 2016 show a dramatic
increase to its highest level $64.8 Billion AUD, that’s over a 100% increase. Australia’s
competitive advantage is mining, it is likely that investment is flowing towards mining. What
could that mean for base commodities? How much of that is China?
Lower FX Reserves
Forex reserves are the hidden weapon for monetary policy control. The reserves stood at the
highest over the last quarter at $88.4 Billion AUD. The recent figures show the RBA drawing
down those reserves to $84 Billion AUD. What does that mean for you FX traders? If a
country sells its reserves well they only end up doing one thing to compensate, very clever
move from the central bank, especially in a devaluation environment.
To conclude – The investment into Australia is strong, supporting the picture that long-term
business growth is inevitable. What we don’t know is what sector is benefiting the most, an
educated guess would say mining, this may mean higher commodity prices are on the
horizon, especially base metals. The picture around FX reserves, explains the recent
dramatic rise in the Australian Dollar, whether the RBA continues down this path we would
need to see the next set of figures but one thing is clear the RBA is supporting a Dollar
devaluation at least in the near term. This is what happens when the FED exports its
inflation, all CB’s must play ball.