Financial Market Research and Analysis

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Australian capex slumps, RBA alert
The Australian capex spending fell by a record 9.2% in Q3, much faster than 2.9% drop the market was anticipating. Last quarter’s fall has also been revised lower to -4.4% from -4.0%. The Aussie is the biggest loser against the US dollar so far. The very weak data is expected to keep the RBA alert for a possible further cut on its cash rate. RBA’s Kent had stated last week that ‘if commodity prices continued to weaken, AUD would need to fall further to help rebalance the economy.’

The Aussie has gained 6.6% since September as investors looked to park their cash in relatively high yielding AUD-denominated assets. As the ECB prepares for additional stimulus via larger asset purchases and further negative rates, the RBA is left with little option. The only efficient action to the carry inflows is lowering its own cash rate. A lower rate differential could curb the appetite for those chasing to benefit from the rate differential and keep the Aussie within 1.45/1.50 zone against the euro and within the 65/70 cents range against the US dollar.

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