Investors focusing on the Asia-Pacific region will receive updates on Australia’s business and consumer confidence figures in the week ahead, after a boost in the country’s current account surplus.

In the second quarter of 2019, Australia posted a surplus of more than AUD 5.85bn, the largest level in a generation.

According to the Australian Bureau of Statistics (ABS), the leap was a turnaround of nearly AUD 7.0bn on the March quarter 2019 deficit of AUD 1.12bn. ABS highlighted that the balance on goods and services surplus rose a little more than AUD 5.0bn to just south of AUD 20.0 bn, while the primary income deficit fell around AUD 1.5bn to AUD 13.93bn.

Guy Debelle, deputy governor at the Reserve Bank of Australia, recently said that Australia’s current account deficit is “the smallest it has been as a share of the economy since the 1970s and the trade surplus is about the largest it has been since the 1950s.”

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Debelle observed that given the nation’s payments are the closest to being in balance in decades, Australia’s net foreign liabilities have been declining towards their lowest as a share of GDP since the early 2000s.

He continued that Australia’s large surplus reflects “a number of dynamics,” including “high revenue from resource exports,” as well as a decline in the import of investment goods, amid the end of the resource investment boom.

Contributing to the massive surplus has also been strong growth in education and tourism-related exports, with the share of services in Australia’s exports having risen to 21% from 17% in the 1980s. Debelle added that manufactured exports have also picked-up pace, with pharmaceutical goods and medical devices having grown by 15% over the past two years.

Aussie Falls Further

Against this backdrop, the Australian dollar (AUD) fell against the U.S. dollar as the latter gained some strength.

Marc Chandler, the chief market strategist at Bannockburn Global Forex, noted that the AUD had slipped through $0.6700 but recovered and now faces resistance in the $0.6735-$0.6740 area.

The AUD was the last trading at about $0.6756 against the U.S. dollar intraday Tuesday, after having plunged almost 8.2% since its latest 52-week high set in early December 2018.

Central Bank Accommodation Continues

Meanwhile, the RBA decided Tuesday to keep its cash rate unchanged at 1.0%, as many in the market widely expected.

Although RBA governor Philip Lowe noted that the outlook for the global economy “remains reasonable,” risks are tilted to the downside, as trade and technology disputes are “affecting international trade flows and investment as businesses scale back spending plans due to the increased uncertainty.”

Lowe said that “persistent downside risks to the global economy combined with subdued inflation have led a number of central banks to reduce interest rates this year and further monetary easing is widely expected.” He added that long-term government bond yields have declined and are at record lows in many countries, including Australia.

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The yield on the 10-year Australian government note fell roughly 0.2% on the day Tuesday to 0.935%, while a host of European sovereign notes remained in negative territory, including Germany (-0.71%), France (-0.40%), Switzerland (-1.06%), Sweden (-0.37%) and The Netherlands (-0.56%).

By contrast, the yield on the 10-year U.S. Treasury note was hovering at around 1.451%.

However, while bond prices rise, the RBA’s accommodative policy does not appear to have helped the country’s stocks to continue their recent upward momentum.

The S&P/ASX 200 was last down around 0.09% Tuesday after having risen more than 11.6% year-to-date. The consumer discretionary sector (-0.35%) was among those in the red, with Super Retail Group (ASX: SUL), JB Hi-Fi (ASX: JBH) and Premier Investments (ASX: PMV) each having contributed to the losses.

Other Australian equities – as evidenced by the iShares MSCI Australia ETF (NYSEARCA: EWA), which has among its top holdings several financial sector firms such as the Commonwealth Bank of Australia (OTCMKTS: CMWAY), Westpac Banking Corp (NYSE: WBK) Australia And New Zealand Banking (OTCMKTS: ANZBY) and NAB (OTCMKTS: NABZY) – fell more than 1.05% intraday Tuesday, according to the IBKR Trader Workstation.

The ETF has shed roughly 6% since its most recent 52-week high set in late July 2019.

Economic Calendar

Investors in the week ahead will be eyeing incoming business and consumer confidence figures to gauge any material change in potential spending patterns.

The reports will also fall on the heels of recent downbeat retail sales numbers, which registered a 0.1% increase in July after a rise of 0.2% in June. 

The week gets underway Monday with National Australia Bank’s (NAB) Monthly Business Survey for August.

Monday, September 9

• NAB Monthly Business Survey (Aug)

The NAB said below-average business confidence and conditions remained the same in July as in the prior month, with the business sector having lost “significant momentum since early 2018,” and as forward-looking indicators do not suggest any near-term improvement.

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According to NAB, weakness in the retail industry “continues to stand out, with conditions in that industry at recessionary levels – and declining further in the month.” They said this was a “worrying result,” given their expectation for some boost to the industry following the post-election tax cuts.

The results of NAB’s Business Survey will be followed on Tuesday by the Westpac-Melbourne Institute Index of Consumer Sentiment for September.

Tuesday, September 10

• Westpac-Melbourne Institute Index of Consumer Sentiment (Sept)

Consumer sentiment had staged a surprise improvement in August, with the index having climbed 3.6% to 100 from 96.5 in July.

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Westpac chief economist Bill Evans noted that the upside surprise had fallen against a “turbulent backdrop with global financial markets roiled by escalating trade tensions between the US and China, the ASX down 3.4% and the AUD off 3¢ US since the July survey.”

However, Evans said the result “does come in the aftermath of an unexpected 4.7% fall in the Index in June/July that came despite consecutive rate cuts from the RBA and the restoration of political certainty following the May Federal election.”

He added that a “major influence on the near-term economic outlook is going to be the mix between spending and saving as households receive their increased tax rebates.” Evans added that with “sentiment flat and households remaining risk-averse we expect consumers to favor saving over spending so this lift in ‘time to buy’ is an encouraging sign for retailers.”

In the meantime, select the Event Calendar option in the IBKR Trader Workstation for a full list of the U.S. and global corporate events and earnings, dividend schedules, economic data, IPOs and more.