The Australian Economy

Sterling lost over 3% against the Australian dollar last month with interest rate expectations in two countries currently poles apart.  While the Bank of England has moved to increase their asset purchase program, investors still believe The Royal Bank of Australia will be one of the first to raise interest rates.  The latest RBR meeting slightly surprised markets. Rates were held steady for the fifth month in a row as expected but the accompanying statement that 'that present accommodative setting of monetary policy remains appropriate for the time being' reduced the chances of a rate hike before November.

Both business and consumer confidence are at their highest levels since the beginning of the financial crisis adding fuel to recovery expectations and although retail sales disappointed in June, Q2 sales were up 2% while there was also good news in the labour market with over 32,000 jobs added in July.  This kept the unemployment rates steady at 5.8% with analysts hoping previous government forecasts of 8.5% unemployment in 2010 will be reduced.  The combination of these events has seen sterling fall into its lowest level against the A$ in just over 13 years.  As notes last month, previous moves against the A$2.00 over the last 20 years or so have been relatively short lived and this latest one is beginning to look a little overdone following six consecutive weeks of losses for sterling. Neat term downside risk is towards the $1.9150/1.9000 area while a push back above $1.9715 would suggest better potential for recovery, initially back towards $2.0000/2.0150.

	Australia	UK
Interest Rates	3.00%	0.50%
Unemployment Rate	5.8%	7.8%
CPI Inflation	+1.7% y/y to Aug '09	+1.8% y/y to June '09
GDP	0.6% q/q to June '09	-0.7% q/q to June'09

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