After the disappointing jobs data the previous week, the drop of the Australia consumer confidence did not come as a surprise in the market. The downbeat data were followed by the plunge of the Australian dollar, however, the Australian stocks still traded higher at the close of the morning session. Considering these turn of market events, can the Australian economy seek for growth?
As the economic conditions of the emerging countries continue to create a scene in the market, the consumers’ outlook for a probable recovery has been deteriorating these past few months. The lack of stimulus from the central banks and the inevitable impact of Brexit vote continue to loom in the global financial sector. Adding to this, the respective government hasn’t made any courageous and effective plan to address the problem.
Consumer Confidence
Earlier on Tuesday, the decline of consumer confidence in Australia made a noise alongside with the fall of the Aussie. The report only proves that the economic condition of the country was seen far from having a significant bounce back. According to the data, the Australian consumer confidence dropped 3.6 percent, marking the lowest outlook since September 2015.
Technically, the consumer confidence indicates the enthusiasm of the consumers to save and to spend, which later can show the optimism towards the economy in general. Thus, it has been used as an effective economic indicator as the personal financial situation of the customers is highlighted. Further, the index provides a view of consumer’s economic expectation.
Meanwhile, ANZ head of Australian economics Felicity Emmett expressed confidence over the economy. In her recent statement, Ms. Emmett said that overall, however, the labor market is still improving and this, coupled with ongoing housing market strength, should continue to broadly support confidence.
“Heading into the third quarter inflation report this week, inflation expectations have been trending a bit higher. But, with the data expected to show still weak inflationary pressures, and inflation outcomes an important driver of inflation expectations, we will be watching this series closely over the next few weeks.”
Australian Dollar
The Australian dollar edged lower in the morning session as the greenback remained strong after the upbeat US manufacturing figures and the renewed chances of a December Fed rate hike. The Aussie opened at 0.76087 and settled at 0.75987 against the U.S. dollar at 10:18 UTC. Although, it was followed by a green candle at 0.76259, the gains seem to be marginal. As you can see in the image below, the Aussie has been declining in the past few sessions after a swift recovery the previous week.
Amid the subdued growth in the industrial and trade sector, the Reserve Bank of Australia has left the cash rate unchanged at 1.50 percent. Although the bank believed that there has been an improvement over the labor market globally and a moderate growth in the Australian economy, it has been pushing low interest rates in hopes of meeting the inflation target. As the benchmark was kept low, it would be hard for the currency to appreciate.
Elsewhere, Australian equities rose the headed by mining and I.T sectors with over 500 rising stocks on the Australian Stock Exchange. At the end of the morning session, S&P/ASX 200 advanced 0.63 percent, while the S&P/ASX 200 VIX went 3.41 percent lower.
Like the other economy, it would still be hard for Australia to have a sustainable growth as inflation target was not yet met, the currency falls and the consumer confidence declines. The Brexit negotiations and the probable December rate hike would definitely be a game changer for the global economy. Also, oil futures have been mixed these past few sessions, with no definite indication of a firm path as disagreement appear before the agreed production cut. Knowing that Australia has a strong trade link with China, it would definitely respond in any development of the second largest economy. However, the cards are still out of the table of Australia.