The Australian dollar has had another good week, reaching 6 week highs against the US dollar and outperforming all but the Norwegian krone, points out Sean Callow, Research Analyst at Westpac.
Key Quotes
“Some of its strength was as we suggested last week, when we noted that the signs were promising for Australia to report strong growth in Q1, in contrast with the likes of the US, UK, Japan and Eurozone which all reported a soft start to the year.”
“Australia’s economy was reported to have grown 1% in Q1, taking annual growth to 3.1%, the fastest pace since Q2 2016 and a swift pick-up from just 1.8% a year ago. A sharp improvement in net exports was the key in the GDP acceleration from 0.4% in Q4 to 1%. Simply hitting the 3% headline growth rate that the RBA and Treasury have been projecting for 2018 and 2019 is a clear positive for AUD that should persist for some time.”
“But outside exports, the details of the GDP report were not so encouraging. Business investment and residential construction made minimal contributions to growth. Household consumption rose just 0.3%qtr, despite the savings ratio falling to 2.1%, a low since 2007. And growth was unusually reliant on a burst in government spending, especially consumption rather than investment (such as high profile infrastructure).”
“Public spending has been outpacing the private sector for some time. So there are reasons to be wary of the simple 3% growth handle. But with global risk appetite calmer since Italy’s new government at least bought some time, the environment seems fairly positive for AUD near term.”
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