Hi, I explained in yesterdays live training session that one of the first things I ask new private students to do is analyse the major economies.

This does not have to be a massively detailed project and everything is available on Google.

New private student Mitch, is from the USA. I asked him to look into the Australian economy to help form a bias as to whether the Aud will continue to go down, up or sideways: nothing complicated!

It is all explained in the members area, but on a simplistic level if you understand the 3 main factors that help to value a countries currency, you directly improve your chances of becoming a successful trader

They are: Growth (GDP), interest rates and inflation. These are the “heart and lungs” of an economy in my opinion.

Once you understand this then you will realise the relevance of the various news announcement throughout the month and which are important and what to look for.

Here is Mitch’s first attempt, unedited.

If you see anything that may be incorrect (we have a lot of Aussie members, so don’t be shy)! add a comment at the end of the article or forum. It will help Mitch plus other members and you may even discover something you weren’t aware of:

Australia’s Economy

Major trading partners

Before the 1960’s, Australia’s major trading partners were the United States and Britain.

However, the focus has shifted to Asia, with four out of five of the top trading partners located there.

Today Australia’s major trade partners are China, Japan, the U.S., and the Republic of Korea. Australia has embraced trade liberalism and partakes in numerous global trade agreements. [1]

Mineral Production

Australia produces 19 major minerals, from over 350 mines. They are one of the world’s leading producers of bauxite (aluminum), iron, lithium, gold, lead, diamond, rare earth elements, uranium, and zinc amongst others [2].

Some of the concerns are that Australia is merely a quarrying nation with low levels of processing, the mining can cause ecological issues, consumption of coal accounts for a major portion of the greenhouse effects, and mining is unsustainable as the resources are not renewable [3].

Australia: Top exports and imports

The top exports for Australia are iron, coal, gold, petroleum gas, gems, meat, pharmaceuticals, machinery, medical apparatus, and wheat.

Their top imports are cars, refined petroleum, special purpose ships, broadcasting equipment, and delivery trucks.

Its top export destinations are China, Japan, South Korea, India, and Hong Kong.

Its top import origins are China, the United States, South Korea, Japan, and Thailand. [4] [5]

Dependencies

Australia is prone to natural disasters; it is dry, and its soil is mediocre compared by world standards for agriculture. [6] The economy is dominated by its service sector. [7]
According to FMP data, its GDP has shrunk significantly since mid 2018 and its inflation has remained relatively steady. Interest rates have been cut from 1.5% to around 0.75% and the central bank has signalled it is willing to cut them further if necessary to stimulate the 3 core indicators.

Current state

The coronavirus has a marked impact on the Australian dollar, with China being its main trading partner. Crude oil has declined in price and overall commodities have suffered but limited in scale.

It is a possibility that the RBA will engage in some form of quantitative easing to increase Australia’s competitiveness. [8]

Reserve Bank of Australia Monthly Statements

In early February, the RBA decided to leave the cash rate unchanged at 0.75 percent because they believed the outlook for the global economy to remain reasonable. They believed there have been signs that the slowdown in global growth from 2018 is coming to an end and expect global growth to be stronger this year, with inflation remaining low. They note one source of uncertainty is the trade dispute between the US and China, as well as the coronavirus. The board also notes continuing signs of a pick-up in housing markets, with mortgage rates at record lows and strong competition for borrowers. [9]

In December the board decided to leave the cash rate at 0.75 as well. Again, they believed the outlook for the global economy to remain reasonable. While the US-China trade dispute is disrupting global trade, most advanced economies’ unemployment rates are low and wages growth has picked up, although inflation remains low. Interest rates are low around the world and some central banks have eased monetary policy in response to subdued inflation [10]. Overall the RBA expected growth and an increase in risk but didn’t know how long the US-China trade dispute would continue, nor did they expect the coronavirus. Why has the easing of monetary policy supported employment and income growth?

In September the RBA decided the leave the cash rate unchanged at 1.00 percent, noting a reasonable outlook on the global economy but that the risks are tilted to the downside. Motivations were the same as those noted in December, but this is likely where long-term government bond yields were noted to have declined to record lows in many countries. Economic growth of the first half of the year was lower than expected, with household consumption reduced by a protracted period of low income growth and declining housing prices. The RBA hoped the low interest rates will make progress in reducing unemployment. [11]

My Take

It seems like Australia has a pretty low inflation rate, indicative of an economy that’s not very hot but it’s also not grinding to an absolute halt. Its unemployment hasn’t gone down in a while, which is likely why the RBA is not very interested in changing the cash rate. The US-China trade war and coronavirus are some of the threats to the Australian economy, and it looks like the RBA is quite dovish and just wanting to wait things out, see how other economies do and adjust accordingly.

This is the first time I have looked at Australia in any detail and I know that I will have got some things wrong and I certainly do not know what the “word on the street is” with regards to the economy, government, fires etc SO I would be grateful if any Aussie members could help me, either in the comments below or in the forum?

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Sources
1: https://dfat.gov.au/about-australia/australia-world/Pages/trade.aspx
2: https://www.ga.gov.au/education/classroom-resources/minerals-energy/australian-mineral-facts
3: https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BN/1011/AustResources
4: https://oec.world/en/profile/country/aus/
5: http://www.worldstopexports.com/australias-top-10-exports/
6: https://www.britannica.com/place/Australia/Economy
7: https://en.wikipedia.org/wiki/Economy_of_Australia
8: https://westpaciq.westpac.com.au/Article/42132
9: https://www.rba.gov.au/media-releases/2020/mr-20-01.html
10: https://www.rba.gov.au/media-releases/2019/mr-19-33.html
11: https://www.rba.gov.au/media-releases/2019/mr-19-23.html