Some reports on Australia out on the news wires today …

HSBC chief economist Paul Bloxham

  • Forecast for RBA cash rate hike in June 2015 remains in place
  • But says “the clear risk is that it holds steady for longer.”

Bloxham cites

  • Falling commodity prices
  • Rising unemployment
  • Slowing Chinese growth

Says these have prompted some to say the next RBA move could be to cut rates

  • But … he continues to think the fundamentals are in place for a continued rebalancing of growth:
  • “Population growth is strong; finance is readily available at low cost, infrastructure investment is set to ramp up in 2015, a massive rise in LNG exports is expected in 2015, and increasing ties to Asia are expected to support Australia’s growth (HSBC expects China GDP growth of 7.7% in 2015). The main challenges to our view are that mining investment has further to fall in 2015, commodity prices have declined further, and the government will need to consolidate its fiscal position over time”
  • “Weighing up these forces, we still see the RBA’s next move as more likely to be up than down”

–

And, from the ANZ:

  • They have lowered their “growth profile for Australia”
  • Now expect slightly softer growth in 2015 and 2016 of 2.9% and 3.2% respectively

ANZ cites:

  • Recent sharp downward revisions to our iron ore price forecast (to take around 1ppt off our nominal GDP forecast and around ¼ppt off real GDP growth)
  • Falling commodity prices is going to hit hard and will weigh on profits and wages, while also reducing both company taxes at the federal government level and royalties at the state level
  • Will in turn constrain consumer spending and business investment, and lead to an extended period of weaker than usual growth in public demand

… A delay in the return to trend growth rather than a change in the trajectory of the Australian economy

Monetary policy will stay lower for longer because with lower growth and little inflationary pressure

  • The RBA has scope to keep monetary policy accommodative for longer
  • We still expect a new tightening phase to commence next year, but have pushed back the timing of the first rate hike from May to November
  • Expect 100bps of rate hikes over the following year to take the cash rate to 3.5% by the middle of 2016

On the Aussie dollar:

  • Is going lower
  • ANZ Research estimates that fair value for the AUD is about USD0.79
  • Despite this, we maintain our USD0.82 forecast for end-2015 and believe that either a rate hike from the US Federal Reserve, or a further step down in key commodity prices would be a more compelling trigger to further downgrade our forecasts