FYI | Sep 04 2006
By Greg Peel
There is a flood of Australian economic data due this week, and the RBA meets tomorrow. Commonwealth Research believes data will show the Australian economy is strong.
However, the economists are not expecting a rate rise tomorrow. (As far as we can tell, nobody does). While labour demand is strong, so is labour supply. Increased business investment leads to increased capital stock, say the economists, and thus increased productivity. This should offset the potential inflation stimulus.
Commonwealth notes the Aussie dollar is coming under pressure. Fears of constrained supply in commodities have begun to wane. There has also been some switching into the NZ dollar in anticipation of a rate rise over the ditch. Nevertheless, Commonwealth is forecasting the RBNZ will cut in the June quarter of 2007.
Economic data flow coming out of the US this week includes the publication of the US Fed Beige Book on Wednesday (for an update on the health of the US economy) and jobless claims on Thursday. Three foreign central banks meet this week – the Bank of Japan, the Bank of Canada and the Bank of England.
While the economists note risk is to the upside, they expect all three to keep rates on hold. While Japan has only recently returned to a “normal” monetary policy, already the economy seems to have hit a mid-cycle pause. With declining industrial production in July and a lower CPI, Commonwealth does not believe the BOJ will leap at another rate rise.
The BOE hiked last month, so Commonwealth is expecting a “wait-and-see” approach this month. However, risks are, again, to the upside.
Economists in Australia are split between those who believe another rise will occur during 2006 and those who don’t. With a strong economy, the popular tip is for a November rise. It will all come down to the data flow between now and then