The Australian Dollar resumed its slide yesterday as commodity prices moved lower and volatility remained elevated across asset classes. These are two of the three main drivers (along with interest rate differentials) of most of the valuation models of the currency. Gold has fallen $40 per ounce since last Thursday whilst in the base metals, aluminium is down more than 4% over the same period. AUD/USD is now down over 3 cents from its recent high of USD0.8130 and is now flirting with a US 77 cents ‘big figure’ for the first time since late December.
NAB’s Quarterly Business Survey was released today. The bank notes that, “The business conditions index (an average of trading/sales, profitability and employment) rose 1 point, to +15 in the December quarter – which is well above the long-run average – driven by improvements in employment, while trading conditions eased slightly and profitability was steady. Employment conditions have been holding up at levels that suggest we are likely to see further improvement in unemployment over coming quarters. Meanwhile, the business confidence index eased slightly to +6 points in the quarter, which is only a little above the average.” Almost all industries reported very elevated levels of business conditions for the December quarter, but despite some improvement since Q3 (inching back into positive territory), the retail sector continues to lag well behind the rest. NAB says, “The health of the retail sector remains quite critical to the economic given that consumption makes up the lion’s share of the economy. If subdued business conditions are telling us something about the mindset of the consumer, then faster and more sustainable growth will be more of a challenge if things don’t improve.”
In his speech earlier this morning Eastern Time to the A50 Australian Economic Forum dinner, RBA Governor Phil Lowe did not sound a man in any hurry to raise interest rates. He said, “given recent developments in Australia and overseas, it is likely that the next move in interest rates in Australia will be up, not down. If this is how things play out, the likely timing will depend upon the extent and pace of the progress that we make. As I have discussed, while we do expect steady progress, that progress is likely to be only gradual. Given this, the Reserve Bank Board does not see a strong case for a near-term adjustment in monetary policy. It will of course keep that judgement under review at future meetings.” The Australian Dollar starts in North America this morning at USD0.7805, with AUD/NZD at 1.0825 and AUD/CAD0.9825.