The Aussie Dollar rallied strongly off support at $0.96 against the greenback, on the back of strong GDP numbers. Expect a test of the declining trendline around $1.02. A peak below zero on 63-day Twiggs Momentum, however, would warn of a strong primary down-trend.
Be careful what you measure!
Australian Real GDP may have grown by 1.3 percent for the first quarter, but as Stephen Koukoulas points out: Nominal GDP (before adjustment for inflation) only grew by 0.3 percent. The cause of the Real GDP surge is a sharp fall in the GDP price deflator, used to adjust for inflation. Falling prices may be welcomed by the consumer but they warn of a deflationary contraction — as in 2008/9 when nominal GDP fell by 5.0 percent.
In the long-term, the Australian Dollar normally follows commodity prices. At present the CRB Commodities Index is falling sharply and the Aussie is likely to follow.
Here’s an idea. I believe inflation is being under-reported. So it is stated as lower than in reality. This means the real GDP is overstated as real is nominal minus inflation so if inflation is less then GDP is more than it would otherwise be. This explains why the RBA is lowering rates rather than raising them for the ‘good’ growth, because they understand that the economy needs a boost rather than just prophylactic to EU and Chinese concerns. The way our inflation statistics are calculated changed last year as did the way the US measures theirs. This is consistent with a paper presented to IMF last year by Reinhart that discusses how the world should go about using financial repression -interest rates below inflation – to pay down debt, but at the same time hide it from the general public [Yes she actually says this in her paper!!!] Refer Carmen M. Reinhart and M. Belen Sbrancia
from ‘THE LIQUIDATION OF GOVERNMENT DEBT’ Working Paper 16893 [http://www.nber.org/papers/w16893 ] NATIONAL BUREAU OF ECONOMIC RESEARCH, 1050 and [http://www.imf.org/external/np/seminars/eng/2011/res2/pdf/crbs.pdf ]
I am having discussions with some economists in US and together we believe this is occurring in US too which we believe just had a quarter of negative growth which has been deliberately but erroneously reported as growth of 1.88%.
Yes, Virginia – the US IS ALREADY IN RECESSION. China also appears to be slowing much more rapidly than is being reported in ‘official’ statistics. Apparently the new economic paradigm appears to be if you can’t improve the economy in truth why not just report that it grew. This smacks of what Russia did when their economy imploded. In the 24 hr media cycle spin wins over substance. Fluff over brains.
Interesting.
The Liquidation of Government Debt; Carmen M. Reinhart and M. Belen Sbrancia; NBER Working Paper No. 16893, March 2011:
“Low nominal interest rates help reduce debt servicing costs while a high incidence of negative real interest rates liquidates or erodes the real value of government debt. Thus, financial repression is most successful in liquidating debts when accompanied by a steady dose of inflation.”
Where do you see inflation as under-reported?