Australian Economy Expands 0.6% in Q3; Australian Dollar Dips

australian economy
  • Australian Economy Expands 0.6% in Q3; Australian Dollar Dips

Weak consumer spending and rising household debt continued to dictate Australian economic direction in the third quarter of the year. Despite growing public infrastructure and private business investments supporting broad growth, economic growth slowed in the third quarter.

According to the Australian Bureau of Statistics, the economy expanded at 0.6 percent, quarter on quarter in the third quarter. This was slower than the 0.9 percent recorded in the second quarter and weaker than the 0.7 percent projected by most economists.

On a yearly basis, the economy expanded at 2.8 percent, still below the 3 percent expected by experts and suggested that the strong Australian dollar during the quarter subdued exports and impact the economy amid sluggish wage growth.

However, continuous investment in the construction sector added 0.9 percent to growth in the quarter, offsetting a 0.1 percentage decline from residential building.

“Investment was a big positive driver (up 1.8 per cent quarter-on-quarter), but was somewhat flattered by a sharp rise in non-dwelling construction which likely came from the installation of two LNG platforms in WA/NT,” BIS Oxford Economics head of economics for Australia Sarah Hunter wrote.

Despite improved investment, consumer spending which makes up about 60 percent of the economy grew at the slowest pace since 2008, expanding just 0.1 percent in the quarter. Suggesting that weak wage growth is hurting household spending and reinforced Tuesday’s projection that surged in retail sales might be a temporary upsurge. Therefore, it is unlikely the Reserve Bank of Australia will raise interest rates anytime soon.

The Australian dollar weakened further against the US dollar to 0.7578. This further validated our September projection that Australian dollar is overpriced and remained unattractive above 0.8080 price levels.

AUDUSDWeekly

While the uncertainties surrounding tax cut and North Korea missile threat is weighing on the US dollar outlook. The Australian dollar, on the other hand, is overpriced and likely to remain less attractive in coming days. An excerpt from September 18-22 forex weekly outlook.

Taking into consideration strong US economic fundamental and the success of tax reform, the AUDUSD pair could easily close below 0.7500 price level in 2017 if geo-political tension subsides. Therefore, we remain bearish on AUDUSD and expect further drop in Aussie value towards 0.7333 in the first quarter of 2018.

About the Author

Samed Olukoya
Samed Olukoya is the CEO/Founder of investorsking.com, a digital business media, with over 10 years' experience as a foreign exchange research analyst and trader. A graduate of University of East London, U.K. and a vivid financial markets analyst.

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