The Australian dollar jumped to its highest level in nearly two weeks yesterday, amid forecasts that the economy will show its fastest pace of GDP growth in four years in the second quarter.
The GDP data will be published today.
The currency’s gains also followed a decision by the Reserve Bank to leave interest rates unchanged at its monthly policy meeting. Economists said the central bank appeared in no mood to cut again just yet, and may be sidelined until next year.
Having eased monetary policy at its May and August meetings, “the RBA board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time”, outgoing governor Glenn Stevens said in his final monetary policy statement.
Late yesterday, the dollar was trading at US76.39c, up from US75.82c a day earlier.
Data on government spending and investment in the second quarter surprised forecasters with its strength, sparking big upward revisions to GDP forecasts by economists.
Scott Haslem, chief economist at UBS Australia, said the economy was on track to post its strongest growth since 2012.
Government spending had boomed, Mr Haslem said. He projected growth of 3.5 per cent year-on-year in the second quarter, an acceleration from 3.1 per cent in the first quarter.
The rebound will not alarm the RBA, which has said it sees scope to drive the economy faster as inflation is well below its desired target of 2-3 per cent.
Australia can recapture the title of “miracle economy”, Mr Haslem said, using a phrase common during the global financial crisis when massive budget and interest rate stimulus helped the nation avoid recession, one of only a handful of major economies to do so.
The economy will cap 25 years of uninterrupted expansion. The last recession was in the early 1990s, when interest rates soared to nearly 20 per cent.
“Australia is zeroing in on The Netherlands for the gold medal of the longest economic expansion in the modern era,” CommSec chief economist Craig James said.
Macquarie Securities economist James McIntyre said he expected “astounding growth” in the second quarter, but this would not rule out even lower interest rates next year. Inflation was low because of weak wages growth and slack in the job market, and this was likely to precipitate further easing, he said.
Shane Oliver, chief economist at AMP Capital, said risks around inflation globally were to the downside, and Australia would not escape those forces. So the RBA might yet have scope for another interest rate cut. But with growth surging ahead, the prospect of aggressive cuts looked more distant, Dr Oliver added.
GDP growth will also be supported by rising company profits, led by miners, which are enjoying a boost from commodity prices, while reaping the benefits of years of rigorous cost-cutting.
Traders said that with the US Federal Reserve likely to drag its feet on raising interest rates until the end of the year, the Australian dollar should retain a base of support over the near term.
