At its August 6th meeting, the Reserve Bank of Australia starkly changed the tone of the language it used in setting expectations for further rate changes. It said that there was a possibility for the bank to raise rates, given that the economy shows substantial signs of improvement. Rate "movement towards a more normal setting of monetary policy could be expected at some point if further signs of a durable recovery emerge," the minute said. At the previous meeting, the bank anchored expectations toward the downside, saying that "the Board's current view is that the outlook for inflation allows some scope for further easing of monetary policy, if needed." Australia's export strength has been an exception as "most countries have recorded declines in export volumes of at least 10 per cent since September." China has clearly come to the aid of the land down under, the RBA acknowledged. The "strong recovery in China, which has boosted commodity prices and demand for Australia's exports, has also been important." These revelations come less than two weeks after Prime Minister Kevin Rudd stated that the country ought not to continue relying on a "mining boom." Nonetheless the RBA's counter-optimism was reflected in this statement so much that it ultimately revised it's domestic growth estimate for 2009 up to 0.5% - far superior to the 1.0% contraction originally forecast. But it seems that the market was not too convinced as to the accuracy of these estimates.
Market Response
Upon initial release, the Australian Dollar spiked against it's American counterpart only to decline to levels much lower than that at which the pair had traded in the moment prior to the release of the minutes. Such price action may imply that the RBA failed to anchor rate expectations to the upside. That is, because the Australian Dollar declined, the market may have thought that there was no real chance that the RBA would help lift the yield-advantage in favor of Australia.
Jobs Picture
All does not seem rosy. Just yesterday, the nation's labor statistics department released jobs data for the month of July. At the outset, it appeared as though the steady 5.8% unemployment rate was a positive sign for the economy. Upon further investigation, we noticed that while 32,000 jobs were created, 48,200 of these were part-time ones. This occurred while 16,000 full-time spots were slashed, adding to the 23,400 ones that were cut in the month prior. A country which converts such positions into part-time ones is not necessarily that which should be the beacon of economic recovery. Such a trend, in Australia, began in July of 2008.
Consumer Spending
Earlier this week, we saw that retail spending plummeted much more than originally anticipated. The 1.4% contraction surprised many because of the fact that the consensus forecast called for a rise in the metric of 0.5%. The deviation here came during a month of continued labor market weakness. Since spending was so weak in June, it was of little surprise that employers were hesitant to hire full-time workers in the following month.
