Consumers MIA Down Under as RBA Looms: Australian Week in Charts

(Bloomberg) -- The global growth optimism spurred by improved momentum in the U.S., Europe and China is being at the very least garbled in efforts to translate it to the land Down Under.

The only thing rising in August across Aussie assets has been government bond yields -- whose advance slowed -- as the data pulse at home reinforced the divide between ebullient businesses and downbeat consumers. Construction and capital expenditure jumped, but home prices, mortgages and retail sales sagged and wages stagnated.

With the Reserve Bank of Australia meeting next week eagerly awaited for clues on how soon rate increases will be on the table, the lack of clarity on the economy’s prospects may make Governor Philip Lowe’s statement harder for investors to parse. Even as Treasurer Scott Morrison said he expects Australia’s economic growth will accelerate, he spared a thought for the nation’s embattled consumers and said the government would seek to empower them.

The following charts highlight key developments in Australia this week as the month of August drew to a close.

Citigroup Inc.’s economic surprise index has come off in recent weeks, after rising for most of the early part of this year in line with business confidence. Its path over the past two months looks more aligned with the slump in consumer sentiment that helped fuel Morrison’s concern.

Another area of concern has been a bout of potential export weakness. While data at the end of last month showed stronger-than-expected U.S. growth and Chinese manufacturing, some of the shine is coming off of the commodities rally for Australia. Iron ore headed for its first weekly decline since the start of July, while data earlier in August showed the RBA’s index of prices for Australian commodities fell for a seventh month and that the trade surplus deteriorated last quarter for the first time in two years.

Australian 10-year yields rose four basis points in August, half the increase for July, and they may fall back unless there’s a revival in raw material prices.

The Aussie dollar is also of concern to some economy watchers because its resilience threatens to act as a restraint on the economy. While the currency fell back recently, the surge that accompanied a turnaround earlier this year in RBA rate bets highlights one of the key reasons for Governor Lowe to stay cautious when it comes to policy guidance.

The local dollar has stalled at around 80 U.S. cents as swaps traders content themselves with pricing in one RBA increase at most in the coming year. Any move to price in more than one could catapult the Aussie toward the 85 cents that Commonwealth Bank of Australia forecast this week as its likely level by the end of 2018.