The Reserve Bank of Australia has remained optimistic recently as the value of commodity prices have settled. However there is cause for concern, as the currency continues to strengthen further the exports have slowed. Australia is a major net exporter of raw materials and the global slowdown may have started to take its toll on the economy.
The RBA have a challenge currently as one of the only countries in the western world where you can gain interest on your savings. This has meant large investments being put into the Aussie Dollar which in turn has increased the strength. If the RBA were to cut rates again then investors may no longer get the returns they want and there could be a sell-off which would dramatically weaken the Aussie.
China nerves close to tipping point
There is no shortage of data coming from China this week and there is a general concern about the state of the economy. The large amount of debt in China appears to have become apparent and it looks like concerns may become realities. This week there will be trade balance data with an expectation of a reduction of exports and an increase in imports. China has become an economy built on lending and there are major fears of a housing bubble collapse just around the corner.
President Xi Jinping in a meeting last week asked policy makers to “control asset bubbles”, many believe this was him directly addressing the housing market. The market crash at the start of this year in China was down to the huge amount of household debt levels. China’s influence on the Australian economy is very significant as its biggest trading partner. There is little doubt that if there was to be a crash in China the Aussie Dollar would weaken dramatically.