The RBA goes into 2014 with a close eye on jobs, knowing very well that the economic outlook for Australia remains fragile. This statement was always going to sound cautious so it doesn’t come as a complete surprise – but the focus on the slowdown in the mining space cannot be understated. There is the prospect for one more cut in the first quarter of 2014.
The RBA goes into 2014 with a close eye on jobs, knowing very well that the economic outlook for Australia remains fragile. This statement was always going to sound cautious so it doesn’t come as a complete surprise – but the focus on the slowdown in the mining space cannot be understated. There is the prospect for one more cut in the first quarter of 2014.
On the currency front, Invast still sees the Australian dollar falling into the mid 80 US cent range in 2014. The most important factor driving this will be a gradual revaluation in the US dollar as the world’s largest economy continues to emerge from its recent slumber and the Federal Reserve looks to taper on its bond purchase. Everybody wants a cheap currency, including Glenn Stevens.
We think the Fed will commence tapering in March as opposed to December – the Fed still needs to see a US non-farm job print in the order of 300,000 in order for the unemployment rate to come back towards its 6.5% target. Meanwhile, the RBA knows very well the importance of unemployment rising in Australia and for us, the jobs numbers are the key swing indicators in what the RBA does next.
Bottom line: Regardless of what the RBA does next, investors unhappy with cash term deposits are unlikely to see a drastic improvement in cash rates for most of 2014. Low interest rates are here to stay – our focus remains finding the opportunities between what looks to be very expensive and over bought financial stocks and heavily discarded but vulnerable resource companies. The full fallout from this year’s resource sector contraction is still yet to completely pan out in our official statistics – we might get a better idea when GDP numbers come out later this week.
