Australian employment and output data may have been a little disappointing in recent weeks, but investors are betting that the Reserve Bank of Australia will hold off from instating an additional rate cut before the end of the year.
The economic outlook for the South Pacific nation is also looking up as the downturn in mining investment is expected to be counteracted by rising levels of activity in other sectors.
According to the Westpac/Melbourne Institute Leading Index (a measure of the potential pace of economic activity over the next three-nine months) economic activity will increase in the near future.
The measure advanced from 0.6 per cent in September to 1.2 per cent in October, adding to a recent string of above-trend results in the leading index’s growth rate.
The RBA opted to cut the benchmark interest rate to a fresh record low of 2.5 per cent in August of this year and fears that another rate cut could occur have worn on the Australian Dollar over the last few months. However, industry experts are now forecasting that a rate cut of a quarter of a percentage point won’t take place until February.
In the words of chief economist Bill Evans; ‘Recent above-trend growth in the index is pointing to a much better outcome over the next few quarters. These forecasts take into account an unusually significant drag from the downturn in mining investment. As such, we should interpret the signal from the leading index as pointing to a solid life in the growth momentum of the non-mining sector.’
Evan’s also stated; ‘As indicated in the [RBA] minutes from the November meeting, the board retains its easing bias but is unlikely to act on that bias in December. Strong results in the housing market are providing a fillip to the economy but, at this stage, prospects for the labour market and world economy are uncertain.’
Whilst this result is positive, investors will be looking at major Australian data releases over the next few weeks for confirmation of the upcoming improvement.
Economic developments in China and the US could also have an effect on Australia’s outlook.