Wednesday 7th September 2011
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Australia’s economy grew faster than expected in the second quarter as the so-called ‘lucky country’ recovered from the Queensland flood-induced first-quarter contraction. The New Zealand dollar fell below 78 Australian cents for the first time in nearly two months after the data.
Australian gross domestic product grew a seasonally adjusted 1.2% in the three months ended June 30, according to the Australian Bureau of Statistics. That beat a Reuters estimate of a 0.9% expansion, and attracted support for the Australian dollar which climbed quarter of a cent to US$1.0565. The decline in first quarter GDP was revised to 0.9% from 1.2% and takes annual growth to 1.8%.
The New Zealand dollar fell to 77.98 Australian cents from 78.36 cents immediately before the announcement. The kiwi was recently little changed at 82.50 U.S. cents.
Australia’s economy “is going through a little bit of a rough patch,” said Darren Gibbs, chief economist at Deutsche Bank NZ. “If it wasn’t for the fact that the kiwi is competitive against the Australian dollar our exports would be struggling.”
Manufacturing and transport, postal and warehouse industries made the biggest contributions to the quarterly growth at 0.2 percentage points apiece, while financial and insurance services was the only sector to detract from the figure with 0.1 percentage points.
The data comes after Reserve Bank of Australia Governor Glenn Stevens said he will keep interest rates on hold for the “foreseeable future” as consumers regain their confidence and global financial markets settle down. The RBA kept the target cash rate at 4.75% yesterday.
New Zealand’s central bank will probably keep the official cash rate on hold at 2.5% next week, and Gibbs expects Governor Alan Bollard won’t start tightening monetary policy until March next year.
“Inflation is not anywhere near the problem we have begun to imagine – a lot of it’s being driven by government and commodity price inflation,” Gibbs said. “Of more concern is what’s happening offshore.”
Traders are betting Bollard will lift the OCR by 43 basis points over the coming 12 months, according to the Overnight Index Swap curve.
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