The chance of the Reserve Bank cutting the official cash rate next week have increased significantly after figures released by the Australian Bureau of Statistics (ABS) showed a reduction in mining investment expectations.
The capex survey data, released yesterday, asked Australian companies what they thought they would spend in 2012-13. Overall there was a dip of 3.3 per cent in intended expenditure, from three months earlier, but in the mining sector this slipped 8.1 per cent to $109 billion.
"There is still a massive volume of work in the pipeline, but the point is they were looking to spend more," said JPMorgan economist Tom Kennedy.
The figures are important to the RBA as they try to pick the peak of the investment phase of the mining boom, something which it has noted will likely occur by the end of 2013.
Private sector credit also grew less than expected in October, according to the RBA. Private borrowing rose 0.1 per cent, after expectations of 0.3 per cent.
JPMorgan, among other banks, is predicting a 25 basis point cut by the RBA next week based on what it believes is fading domestic growth.
Credit Suisse interest rate futures have jumped from a 60 per cent chance of a cut, prior to the release of capex data yesterday, to an 86 per cent chance today.
Mr Kennedy said that weaker retail volumes, government spending and planned private spending are all factors which the RBA will have to take into consideration at its board meeting.
The US fiscal cliff and ongoing political and economic problems Europe all have flow on consequences for the Australian economy and with there being no board meeting in January, the likelihood of the RBA easing as a precautionary measure, should those risks flare, increases.
Mr Kennedy said a rate cut would not have a long-term effect on the Australian dollar.
"[The dollar] has remained well elevated over the last year or so, despite the RBA giving 150 basis points on easing since November 2011," he said. "it has a temporary affect in terms of lowering the currency in the near-term, but a month later, the domestic fundamentals usually come into play and the currency continues on its trend."
If the RBA were to cut the cash rate down to 3 per cent, it would be the lowest since 2009.
Mr Kennedy said that JPMorgan was also pricing in another rate cut in February, taking it down to 2.75 per cent, a new record low.