Rate Cut, Higher Consumer Sentiment Should Boost Australia ETF

Nov.15.11 | About: iShares MSCI (EWA)

A lower unemployment rate and higher consumer sentiment are supporting growth in the Aussie economy. The Reserve Bank of Australia earlier this month cut its main cash rate 25 basis points to 4.5%, setting the stage for more growth.

Will this positive economic sentiment give life back to the exchange traded fund iShares MSCI Australia Index (NYSEArca: EWA)? The ETF holds nearly $3 billion in assets.

The Australian jobless rate stood at 5.2% in October, which helped the country keep its status of being one of the best performing labor markets in the developed world. Enda Curran for WSJ.com reports this means the central bank is not under pressure for further monetary easing.

“There is limited further downside to employment growth unless European developments drive employers to become more bearish,” according to a Citi economists note.

The fact that the country was able to add jobs during the strong eurozone crisis gives merit to the strength of the economy. However, given the negative economic conditions in the eurozone, it is highly unlikely that the labor market can make further gains.

“We are going to see the eurozone slowing down world economic growth right across the board,” Graham Kraehe, a board member of the Reserve Bank of Australia, said. “That’s part of the reason our forecasts for growth in this country are coming down a bit, but we’re not in a crisis scenario at all.”

iShares MSCI Australia

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Tisha Guerrero contributed to this article.