Profile of Australias dollar – major economic reports
This lesson will cover the following
- Gross Domestic Product
- Trade Balance
- Consumer Price Index
- Producer Price Index
- Employment Change
Major economic reports, released by Australia
Gross Domestic Product
The GDP represents the total monetary value of all goods and services produced over a specific time period in Australia, or the size of its economy. It is comprised by expenditures, made by households, business and government sectors, and the net foreign purchases. Fast rates of economic growth are usually considered as conduits to inflation, while low or negative rates of growth signal weak economy or recession. The report on Gross Domestic Product holds a lot of weight for currency traders. Because it serves as evidence of growth in a productive economy (respectively, evidence of contraction in an unproductive one), currency traders will see a higher rate of growth as an indication that interest rates will probably be raised as well.
The trade balance, as an indicator, measures the difference in value between country’s exported and imported goods during the reported period. It reflects the net export of goods and services, or one of the components to form country’s Gross Domestic Product. Market players tend to give higher priority to seasonally-adjusted figures, reported during a period of three months, because one-month trade periods are considered to be not very reliable. A contracting trade deficit or expanding trade surplus will usually provide support to demand for Australian dollar.
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Consumer Price Index (CPI)
The index of consumer prices is based on a basket of goods and services, which are bought and used by consumers on a daily basis. The CPI is used as a measure of inflation. The basket includes those goods and services, which contribute to a large proportion of expenditures made by metropolitan households. First necessities, housing, education services, financial services, transportation services, healthcare are all included. Changes to monetary policy are usually made by the RBA, based on the performance of this index.
Producer Price Index (PPI)
The index of producer prices reflects the change in prices of products, sold by manufacturers during the respective period. The PPI reflects changes in prices of almost every goods-producing industry in Australian economy, including sectors such as agriculture, electricity and natural gas, forestry, fishery, manufacturing, mining. The PPI differs from the CPI, which measures the change in prices from consumer’s perspective, due to subsidies, taxes and distribution costs of different types of manufacturers in the country. In case producers are forced to pay more for goods and services, they are more likely to pass these higher costs to the end consumer. Therefore, the PPI is considered as a leading indicator of consumer inflation. Currency traders tend to pay more attention to seasonally adjusted finished goods PPI and its performance on a quarterly basis, as Australian PPI report is published each quarter.
This indicator reflects the number of employed people in the country. The report on employment change is based on the Labor Force Survey, which the Australian Bureau of Statistics conducts on a monthly basis. The indicator can be interpreted in a different economic context. Creation of jobs is considered of utmost importance for consumer spending in the country, as the latter is among the driving forces of overall economy, especially if growth is still languid. On the other hand, in a booming economy an exceptionally strong increase in employment may lead to exceedingly high spending, while the latter may be a conduit to rising consumer inflation. In this case the Reserve Bank of Australia will need to consider a rate hike.