Can Australia Repeat Previous Capital Expenditure-led Strength?
As one of the world’s foremost producers of a number of key industrial commodities, Australia has benefited greatly from surge in raw materials of the past few years. The extended rally has left producer profits significantly higher, with the influx in capital leading to a similar gain in domestic investment. Given that this appreciation was primarily due to above-trend global growth, however, a broader slowdown threatens to leave commodity prices relatively unchanged through the coming year. For this reason, it is increasingly likely that domestic investment will slow, potentially leading to a retrace in incredibly strong labor growth and a normalization of wage pressures. This would have two-fold effects on the domestic currency. Of primary considerations, softer GDP expansion and slower price gains would in of themselves lead to a fall in optimism for the Aussie dollar. In addition, a slowdown in commodity purchases would also affect the domestic trade balance of goods and services.
