A drop in the “persistently high” Australian dollar will improve local economic growth, says HSBC's chief economist.
HSBC chief economist Paul Bloxham said a fall in the Australian dollar – reflecting a “strengthening US dollar and softer Chinese data” – will help boost local income as commodity exports are priced in US dollars.
“For the past few months, our biggest issue for Australia's growth outlook had been the persistently high and overvalued AUD,” Mr Bloxham said.
“The move in the AUD will be welcomed by the RBA. It will help to boost local incomes, as commodity exports are priced in USD, so a lower local currency means more AUDs for any given amount of commodity exports,” he said.
“It will also help to improve Australia's competitiveness. Assuming the AUD stays at its lower new level, or falls further, it should see an upgrade to the RBA's growth and inflation forecasts published in early November,” Mr Bloxham said.
Mr Bloxham also said low interest rates have been doing “their job” of rebalancing growth towards the non-mining sectors of the economy.
“The high AUD had been constraining the speed of this rebalancing,” he said.
“The recent fall in the AUD should see a pick-up in the pace of rebalancing over time. If this occurs, as we expect it will, then the RBA could start to use hints about its future cash rate setting to rein in the housing price boom,” Mr Bloxham said.