© Thu Lan Nguyen
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Overall, in terms of economic data, we have seen better than expected inflation development in the second quarter. Particularly, the preferred inflation measure by the RBA, the "Trimmed Mean", stayed stable at 1.7% instead of declining towards 1.5% as analysts as well as the RBA had anticipated. Nevertheless, other data was rather mixed, therefore, the RBA had enough reasons to announce a rate cut yesterday. To my mind, the main argument favouring a rate cut was the appreciation of the Australian Dollar since the end of May, which has been weighing on the inflation outlook.
Experts name numerous reasons for weakening Australian inflation from the end of momentum in wage growth to deep structural changes in the competitive market forces. From your point of view, what are the most important contributors to such trend? Is it a temporary tendency or a long-term perspective?
I believe that some part is likely to be temporary. For instance, the effect of the sharp decline in commodity prices is going to fade as the prices have stabilized or even somewhat recovered. However, another part indeed may be structural and have to do with the fact that inflation is globally low, despite all efforts of the central banks. This suggests some kind of structural component which is weighing on the Aussie.
The Australian government have been pursuing the goal of economy diversification away from the mining sector for quite a long time. What is your estimation of the progress made towards this objective and, in particular, which sectors have potential to make up for the contribution of mining industry to Australian welfare?
I do believe that for such a small and open economy, the trade sector remains crucial. But so far the transition of the Australian economy has also been in favour of the domestic economy, i.e. domestic demand has been solid and the services sector generally becomes more important.
What is your forecast for USD/AUD and EUR/AUD currency pairs till the end of 2016?
For the USD/AUD currency pair we would expect to see the level of 0.69 by the end of this year. The EUR/AUD we see trading at 1.56 for the same period.