25 years of recession free growth on edge

The Australian economy surprised the markets by delivering a 0.5% decline in economic growth in the 3rd quarter to September, the first time since March 2011 - 0.2% contraction – when the country suffered the Queensland flood. If we see a second contraction in the 4th quarter to December, the country will end its 25 years of recession free growth. Whilst most analysts believe the contraction of 0.5% was a one-off blip and growth to bounce back to positive territory in the 4th quarter to December.

Capital Economics, a leading macroeconomic research body believe the Reserve Bank of Australia may cut the cash rate at their next meeting in February from the current 1.5% levels – some of the highest in the developed world – in order to stimulate domestic demand through increased marginal propensity to invest and decreased marginal propensity to save. With some analysts even postulating a possible cut to 1% by the end of 2017.

All this comes at a time where there is a strong chance that at least one of the three major credit rating agencies, Standard & Poor’s could downgrade Australia’s AAA credit rating. Angus Coote, co-founder of Jamieson Coote Bonds believes there to be a 30% to 40% chance of Australia being downgraded due to a slowing economy and a widening budget deficit.

Any indication of decreases in the Reserve Bank of Australia’s cash rate or changes in Australia’s AAA credit rating may weaken AUD and could lead to potential spikes for anyone with an AUD purchase requirement.

In the meantime, if you have an AUD selling requirement, it may be prudent to lock in these current rates before further possible AUD negative news is released for a small deposit through the use of a forward contract in order to remove any volatility from the transfer. Contact your account manager here at Currencies.co.uk on 01494 725 353 to learn more about the options available to you.

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