© Annette Beacher
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Mining investment in Australia is currently shaving off over 1% from the GDP; this explains why the growth figures are so low. Outside that correction, we can say the consumption estimate is 1.5% and housing investment is adding +0.5%. Hence, the Reserve bank of Australia policy is working on housing, and to a lesser extent consumption. However, it would be fair to say it is not productive in terms of non-mining investment, which could be considered as a point of frustration for the RBA.
RBA governor Stevens described the housing boom as "acutely concerning" and "crazy" after comments by Treasury Secretary John Fraser, who said there was "unequivocally" a housing bubble building in Sydney and parts of Melbourne. What consequence for the housing market do you foresee in the given circumstances?
In my point of view, a lot of the ‘concern' is politically motivated. There is a groundswell of negative opinion that first home buyers cannot afford a house, exacerbated by the perception that Australian homes are only being bought by cash-rich offshore-based and domestically-based investors. However, we believe the truth is less stark, with many "normal" families buying and trading up.
With auction clearance rates at record high levels that is a concern, as well as rising household debt levels. However, servicing these debts has never been cheaper, therefore, that is the reason why debt levels can be higher. The worry is how will the households cope when yhr interest rates go up, which they will inevitably do. We believe the consequence is likely a lower neutral cash rate than that assumed during the 2009-2010 RBA tightening cycle.
What will be the major drivers for Aussie till the end of 2015 and what are your forecasts for AUD/USD, EUR/AUD and AUD/JPY in Q3 and the year end?
We can mention the behavior and trading levels of the US Dollar as well as the iron ore prices and of course the Reserve bank of Australia bias. We see the Greenback mildly moving to the upside; hence, our year end forecast is 0.75 for the AUD/USD and 0.76 for Q3. Talking about the EUR/AUD we see the pair trading at 1.316 levels in Q3 and 1.280 by the end of 2015, while we forecast the AUD/JPY at 93.5 and 93.8 respectively.