RBA: Upside risk to investment outlook - AmpGFX

Sandeep Kanihama FXStreet Contributor

RBA minutes commentary on private and public business investment sounded quite upbeat and appears to allude to upside risks to the RBA forecasts that are for a “pick up later in the forecast period”, but to remain subdued for now, notes Greg Gibbs, Analyst at Amplifying Global FX Capital.

Key Quotes

“They cite evidence pointing to a faster pickup sooner: strong business confidence, commercial vehicle sales up, non-res building approvals up, public infrastructure flowing to private order books.”

“The RBA minutes noted that business investment had picked up internationally, they said, “In particular, growth in business investment had picked up in several advanced and emerging economies, including the United States, Canada, Japan and a number of economies in east Asia.”

“It is interesting that the RBA is using the international experience to support their forecast of subdued wage growth, but do not appear to be applying the same thought process to business investment. If business investment is happening more globally, and conditions and indicators are pointing to the same in Australia, its further reason to expect a stronger recovery in Australia, sooner.”

“Low bar for labour market improvement

The minutes also talk about the strong labour market this year. But forecast little further improvement in the unemployment rate.

This is a point of risk for AUD bears. The RBA has set a very low bar for the labour market to improve faster than its forecasts. At the end of their forecast period (2+years) they see unemployment only a bit below 5.5%. Unemployment (5.6%) could improve a lot faster if the recent pace of job growth keeps up. Especially if business investment rises faster than forecast.”

Author

Sandeep Kanihama

FXStreet Contributor

Sandeep Kanihama is an FX Editor and Analyst with FXstreet having principally focus area on Asia and European markets with commodity, currency and equities coverage. He is stationed in the Indian capital city of Delhi.

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