From UBS:
Overview
This week we update our Australian Financial Conditions Index, first published last year, and also launch a replica FCI for New Zealand. Our FCIs – an average of financial indicators (such as lending rates, the bond curve, the exchange rate and asset prices) – lead GDP growth by about 3 quarters in both countries. Australia’s FCI implies GDP growth well above the current 2.4% y/y pace, consistent with our forecast acceleration through 2017 to 3¼% y/y, led by the ‘fading headwinds’ across commodities, capex and fiscal policy. But our FCI suggests conditions are ‘less easy’ than they were a year ago, due to the much higher AUD, albeit significantly offset by the recent strong pick-up in both equity and house prices. Recent ‘out of cycle’ hikes by banks for housing have also contributed modestly to tightened conditions.
