The Global Currency Investor A Quarterly Analysis of 50 World ...

Jan 09Jul 09Jan 10Jul 10Jan 11Jul 11Jan 05Sep 05May 06Jan 07Sep 07May 08Jan 09Sep 09May 10Jan 11COUNTRY REPORT: AustraliaOutlook: PositiveS&P Moody's Rates Policy 3m 5y 10y[30-Sep-2011]Rating (LC) AAA Stable Aaa Stable4.75% 4.84% 3.79% 4.22%Economy and Market OutlookSentiment in Australia has shifted drastically with the change in global sentiment and the robusteconomic outlook has shifted to concerns that global weakness would feed into commodity pricesand weaker Chinese growth. Markets are currently pricing in interest rate cuts in Australia but thisscenario looks extremely unlikely unless the global economy does move back into recession. TheAustralian dollar has fallen back sharply and this will already be of some concern for the RBA givenalready elevated inflation expectations. The labour market remains tight but with some structuralchanges as the high level of the currency sees job losses in the manufacturing sector but continuedincreases in commodity sectors making the economy ever more reliant on China in the longer term.Skills shortages remain a problem and this is feeding into rising wages. Given these concernscounterbalancing external weakness it is likely that the RBA will now keep interest rates unchangedfor the rest of the year and move to a more neutral outlook. There remains potential for higherinterest rates in 2012 if expectations for global growth recover, though. The correction in theAustralian dollar appears to have removed some of the large investor position in the currency andprovides a more constructive positioning picture. We remain positive but with the caveat that if thenegative sentiment towards global growth gets more traction the Australian dollar could well fallfurther from current levels.1.21.11.00.90.80.70.60.5USD/AUDJPY/AUD13012011010090807060506.56.05.55.04.54.03.5Unemployment Rate %2010 2011 (f) 2012 (f)Real Growth (%) 2.7 1.8 3.3CPI (%)* 2.7 3.7 3.8Current account (% GDP) -2.7 -2.2 -4.7Fiscal balance (% GDP) -4.9 -3.9 -1.9Government Debt (% GDP) 4.4 7.7 9.4Daily volumesUSDPoliticsPrime Minister: Julia GillardNext election: 2014Prime Minister Julia Gillard is coming underincreasing pressure with her handling ofchanges to the Migration Act the latestcontroversial issue. Speculation is now rifethat she will be faced with a leadershipchallenge in coming months with someparty members wanting a return of KevinRudd.FX Reserves*End of Year28.49bnSource: IMF, S&P, Bloomberg15Confidential – not for redistribution. This material must be read in in conjunction with the “Important Information” statement provided on the last herein. page.