Commodities look strong

Thanks to China’s continued interest in our export market, Australian commodity prices have risen higher in the first half of 2017. If the gain were to last, Nikko Asset Management says it could lead to a rise in inflation and continued improvement of nominal GDP. This in turn could lead to an interest rate rise, with Nikko predicting the Reserve Bank will increase or hold rates in a “strong nominal GDP environment”.

Much of the success of our commodities sector relies on China. There has recently been an expansion of money in the country’s economy, which has helped support prices, although at the time of writing iron ore was dropping. As this fiscal expansion slows, the gains in Australian commodity prices could also begin to slow, with Nikko suggesting this could potentially end the 12-month long rally. Despite this, Nikko predicts the outlook for the next two quarters to be strong.