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30 Mar 2015
Australia requires further policy easing - Nomura
FXStreet (Bali) - According to Charles St-Arnaud, Economist at Nomura, the lack of competitiveness in Australia reduces the impact of a weaker AUD, requiring more stimulus.
Key Quotes
"The Reserve Bank of Australia (RBA) has said for some time that a weaker currency will support the transition from a resource-led economy to a non-resource-led one."
"Over the past year, AUD has depreciated by more than 15% against USD and by more than 10% on a TWI basis. Although this depreciation is large, only a small proportion of Australia’s exports are sensitive to the exchange rate."
"Moreover, the underperformance of nonresource exports in recent years owing to competitiveness issues will likely reduce the sector’s response to the weaker AUD."
"As such, further stimulus will likely be required. Although monetary policy has been the main option, it has lost some of its effectiveness owing to high leveraging and a lack of animal spirit."
"Hence, we believe fiscal policy should be considered to supplement monetary easing."
"However, there is little debate at the moment and the likelihood of fiscal stimulus remains low."
"As a result, we continue to expect the RBA to cut in May and believe that the likelihood of more cuts in the second half of the year is increasing in our view, continuing to put downside pressure on AUD."
Key Quotes
"The Reserve Bank of Australia (RBA) has said for some time that a weaker currency will support the transition from a resource-led economy to a non-resource-led one."
"Over the past year, AUD has depreciated by more than 15% against USD and by more than 10% on a TWI basis. Although this depreciation is large, only a small proportion of Australia’s exports are sensitive to the exchange rate."
"Moreover, the underperformance of nonresource exports in recent years owing to competitiveness issues will likely reduce the sector’s response to the weaker AUD."
"As such, further stimulus will likely be required. Although monetary policy has been the main option, it has lost some of its effectiveness owing to high leveraging and a lack of animal spirit."
"Hence, we believe fiscal policy should be considered to supplement monetary easing."
"However, there is little debate at the moment and the likelihood of fiscal stimulus remains low."
"As a result, we continue to expect the RBA to cut in May and believe that the likelihood of more cuts in the second half of the year is increasing in our view, continuing to put downside pressure on AUD."