Australian economic data might worsen ahead, RBA action likely – Rabobank

FXStreet (Barcelona) - China’s weaker growth story and the falling commodity prices will likely feed into Australia’s economic data ahead, explains Jane Foley, Senior Currency Strategist at Rabobank, and further expects RBA to cut rates later this year.

Key Quotes

“The strength of the Australian jobs report is counter to market expectations that the Australian economy is vulnerable to the visible slowdown in China – its main export partner. Chinese growth in Q1 was reported earlier in the week at 7% y/y which was the slowest pace in 6 years.”

“The combination of slowing demand from China and a glut of supply has taken iron ore prices to 10 years lows.”

“Earlier this week PM Abbott admitted that the collapse in iron ore prices and the consequential drop in related tax revenue had blown an AS30 bln black hole in the federal budget over the next 4 years. As a result the government will renege on a promise to cut company tax on big business which may in turn have a negative impact on investment and employment.”

“As the effects of the Chinese economic slowdown and the related weakness of commodity prices seep through the Australian economy, the market has been preparing for a batch of worsening Australian economic data.”

“While today’s jobs release is good news, there is some scepticism about the credibility of these statistics; last October the Australian Bureau of Statistics was forced to admit that its jobs report was wrong.”

“Next week Australian Q1 CPI inflation data and the minutes of the RBA’s April policy meeting are due to be released. Inflation is expected to moderate.”

“Although the RBA has indicated that strong housing data and related concerns about household debt have been a restraining influence on policy, it is our expectations that the RBA will cut rates again later this year as the darks clouds from China continue to gather.”