Rising coal price boosting Aussie economy

By Killian Plastow

— 1 minute read

17 October 2016

The likelihood of the Reserve Bank of Australia cutting rates again in November is rapidly collapsing due in part to the improving price of coal, according to AMP Capital.

Australia is likely to benefit from “the more than doubling in average coal prices flowing through to coal contract negotiations with Japan”, AMP Capital chief economist Shane Oliver said.

“While coal prices may not ultimately settle at current high levels, they do look to have bottomed and the rise in coal prices is another sign that the terms of trade and national income have seen the worst,” he said.

The federal budget deficit could also see a “big improvement” if bulk commodity prices are sustained at their currently high level, which Mr Oliver explained could eliminate the country’s trade deficit.

“Given this along with reasonable economic growth and the rising prospect of a December US Federal Reserve rate hike taking upwards pressure off the Australian dollar, the probability of a November RBA rate cut is rapidly collapsing,” he said.

Business and consumer confidence are also both now above their long term averages, though housing finance was weak, Mr Oliver said.

“Housing finance was soft in August, which appears to contrast with strong auction clearance rates, but it’s noteworthy that while auction clearances are high it is on declining volumes so maybe they are not as strong as they appear,” he added.

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