I appeared on Channel News Asia again this morning at 8:30am SGT, live from their Raffles Place studio. My questions and my responses in the form of brief notes are below:
Q1. Will Malcolm Turnbull be good for the country in overhauling Australia’s economy?
The markets are certainly indicating so. The news is less than 24 hours old and the AUD/USD has already responded well moving around 1 US cent higher to a two week high above 0.7150. The commentary floating around also points towards positive sentiment around the change at the top.
The new PM has extensive experience in the financial markets having been formerly an investment banker. He launched his bid yesterday on economic reform and fixing Australia’s fragile economy and if Australia needs anything right now, it is strong leadership on the economy.
He has also been lauded for his communications skills.
Q2. Is a recession imminent in a country that has gone 24 years without one?
I don’t think it is imminent however it is now more likely than it was 12 months ago. In the last quarter we saw GDP of only 0.2% and therefore a decline in growth, which was the equal lowest seen in the last few years. After that result, talk gained momentum that it could only be 6 months away from Australia being in recession for the first time in more than 20 years.
Q3. The Australian dollar has long been viewed as a proxy for China’s growth. Are you an Aussie-dollar bear?
I am still bearish the Australian dollar and it seems that I am not alone. Of all the G10 currencies, the International Money Market on the CME still has the greatest short exposure on the AUD, just eclipsing the Canadian dollar. Again, we only have to compare Australia’s growth forecasts with the US to know that presently they are on slightly different paths.
The 70 cents level still remains a key and it is significant that it has been able to rally back above this level and maintain this level for the last week.
There is talk around that potentially the RBA may cut rates again this year and of course, we are talking about the US Federal Reserve not far away from raising rates for the first time in 9 years. Therefore there is a lot of bearish sentiment surrounding the Australian dollar presently.
Q4. The Fed appears on track to raise short-term interest rates this year, will the move come this week?
That is a great question. We haven’t seen something in the market like this for a long time that has so equally split opinion. You have something like the IMF urging the Fed to hold off and wait until the global economy recovers more whilst you have others urging them to act and get the ball rolling.
However I should add that the Fed have been at pains all year to stress that the timing of the first rate rise is not that important. It is what happens afterwards and the path that the Fed takes that is much more important. I think this is being a lost a little as we are tending to focus so much on the first rate rise.
Q5. Will we see further rate cuts by the Reserve Bank of Australia for the rest of the year?
The RBA have cut twice this year and the official cash rate is currently at historically low levels. Central banks tend to take a long term view of the economy and it will be interesting to see if the recent change in PM and focus on economic reform and recovery will see the RBA just take a more patient look at any rate change.