Commodities, Exports, and the Aussie Economy
The deteriorating Chinese economy signals softer demand for key Aussie exports such as coal and iron, painting a gloomy outlook for Australia’s economy. Notably, Chinese factories have started reselling commodities at lower prices, particularly affecting iron ore prices. As one of Australia’s main exports, lower iron ore prices may worsen Australian trade terms.
Australia has a trade-to-GDP ratio of over 50%, with 20% of its workforce in trade-related jobs. Furthermore, China accounts for one-third of Australia’s exports. Weaker demand from China and lower commodity prices could adversely impact the Aussie dollar, possibly pulling the AUD/USD pair down toward $0.66500.
Expert Views on Commodity Prices and the RBA Rate Path
AMP Head of Investment Strategy and Chief Economist Shane Oliver recently remarked on the RBA rate path, stating,
“The resumption of share mkt weakness along with falling commodity prices & bond ylds is signalling concerns about the global economy the RBA can’t ignore.Just as the Fed has changed its tune significantly over the last few mths there is a high probability the RBA will do the same so the Australian money market’s continued pricing in of a rate cut by year end – a 0.25% rate cut is priced in with a 92% probability – may not be that outlandish, despite recent RBA guidance.”
The US Economic Calendar: Manufacturing in Focus
On Monday, September 16, the spotlight will be on the US manufacturing sector. Economists expect the NY Empire State Manufacturing Index to rise from 4.7 in August to 3.9 in September.
Weaker-than-expected numbers may reinforce expectations of a 50-basis point September Fed rate cut. Despite accounting for less than 20% of the US economy, weakening sector activity may impact labor market conditions, as it accounts for around 9% of the US workforce.
