Australians will learn this week that the economy is in a sounder position than many analysts have previously thought, and there will be more confirmation that for all the bad headlines from China’s trade thuggery, there’s a global commodity price boom underway that will carry on into 2021 (See separate story).
The third quarter National Accounts and GDP data is out on Wednesday, the day after the final Reserve Bank board meeting of what has been an eventful year with no change in monetary policy expected after the historic changes last month that saw a record new low for rates of 0.10% and a rapid rise in the bank’s quantitative easing to $100 billion on top of the bond-buying aimed at keeping the three-year rate at 0.10%.
But there is already revealing a growing pain for the Reserve Bank and exporters – a stronger than wanted Aussie dollar which is up 4.7% in November so far and nearly 30% from its low in late March in the depths of the COVID-19 pandemic sell-off.
The dollar has actually peaked at 74.14 US cents in the past month or so and touched 73.99 US cents in offshore trading on Friday where it ended around 75.85 on Saturday morning.
It could easily run back over 74 US cents in the next few weeks, even in the face of weak economic news COVID infections and deaths continue to rise in the US and Europe.
AMP chief economist Shane Oliver reckons there’s a chance the dollar could scoot towards 80 US cents in the next year.
“Although the $A is vulnerable to bouts of uncertainty about coronavirus, the economic recovery and China tensions and RBA bond-buying will keep it lower than otherwise, a continuing rising trend is likely to around $US0.80 over the next 12 months helped by rising commodity prices and a cyclical decline in the US dollar,“ he wrote in his weekend note.
The post-meeting statement and Governor Lowe’s parliamentary testimony on Wednesday should be watched for signs of more confidence regarding the outlook given recent positive news on COVID vaccine news.
But the economy remains weak (though it is improving) and wages, spare capacity and low inflation mean a rapid uptake in jobs won’t worry the RBA (especially the 178,000 new jobs in October). For those reasons Governor Lowe is likely to repeat that the RBA does not expect to raise rates for the next three years at least.
On the data front, the key focus will be September quarter’s National Accounts and GDP on Wednesday. Dr. Oliver is expecting the data to show the economy exiting the recession with a 2% quarter on quarter after the 7% contraction in the first half of the year.
“The rebound is likely to have been driven by a strong surge in consumer spending, a rise in public spending and a contribution from inventories offsetting falls in new home building, business investment and a -1.5% points detraction from net exports,” according to Dr. Oliver.
“Were it not for Victoria’s lockdown the rebound would probably have been around 4 to 5%. Even with a 2% rebound GDP will still be down 4.8% on a year ago,” Dr. Oliver wrote at the weekend.
The NAB is far more bullish, forecasting a 4.1% quarter on quarter rise.
“In the quarter, household consumption should drive the increase, offsetting drags from business investment and net exports. This outcome would confirm that the economy has passed through the trough in activity, rebounding sharply amid significant policy support and the general easing in COVID-19 restrictions,” NAB economists forecast late last week.
There’s the usual start of month data as well – November house prices tomorrow, the monthly survey of Australian manufacturing activity as well tomorrow, credit growth today for October, Wages, salaries and inventories for the September quarter, the current account data for the same quarter and government finance figures as well for the quarter.
Building approvals for October are out tomorrow and Dr Oliver says a 1% fall is possible after the big surge in September, housing finance for October to show a 1% gain and the trade surplus remaining large (both Thursday) and October retail sales on Friday to show a 1.6% rise in line with preliminary data already released. Payroll jobs data will be released tomorrow.