From the note:

  • The six month annualised growth rate of the Index has now been growing below trend since February
  • It is indicating that growth in the Australian economy can be expected to remain below trend for the remainder of 2014 with limited momentum into 2015
  • Over the second half of 2014 Westpac is expecting GDP to grow at a 2.8% annualised pace while domestic demand is expected to grow at a 1.6% pace – still well below trend

Today’s data doesn’t alter Westpac’s view:

  • The minutes from the July Board meeting confirmed that the RBA continues to expect to hold rates steady. That seems to be the most prudent approach.
  • Certainly the Leading Index is not indicating an imminent period of growth that might force the Bank’s hand to raise rates.
  • The real issue is around how long this recent shock to confidence from the May Federal Budget will constrain the consumer. We expect that through the remainder of the year the consumer will begin a steady lift in confidence and activity as concerns around the Budget dissipate.
  • Such a scenario points to at least another year of steady rates.
  • We do not expect to see a rate hike until August next year

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Not usually a high priority data point for the FX market, but it all goes into the mix.