Australia Business Investment Slips, Spending Peak in Sight

Australian currency
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Australian business investment suffered a surprise fall last quarter as firms outside the red-hot mining sector cut back, while estimates of future spending confirmed the long boom in resource investment was likely to crest this year.

The Australian Bureau of Statistics reported private capital expenditure fell 1.2 percent last quarter, confounding forecasts of a 1 percent increase. Total spending amounted to A$41 billion ($41.9 billion), which was still 10 percent higher than in the fourth quarter of 2011.

(Read More: Australia Central Bank Saw Scope to Ease If Needed, Policy Already Loose-Minutes)

A closely watched estimate for spending in the 12 months to June 2014 came in at A$152.5 billion, which would be a slowdown from the A$168.2 billion expected for 2012/13 but still a major support for the A$1.5 trillion economy.

"The first estimate of $152 billion is quite good. That should give the Reserve Bank some relief. Although the peak is in mid-2013, the follow-on from that will be quite mild," said Joshua Williamson, a senior economist at Citi.

(Read More: What Aussie Earnings Season Says About the Economy)

"So we're not looking at an investment cliff, more a gentle slope."

Investors seemed to have been braced for a weaker result, and after an initial dip the Australian dollar rallied back to $1.0242 . Interbank futures slightly lengthened the odds the Reserve Bank of Australia (RBA) would cut interest rates its March policy meeting next week.

(Read More: Australian Central Bank More Upbeat, Notes Low Rates)

The central bank has repeatedly highlighted the importance of the data for the outlook for rates, both for the insight on when the boom in mining investment might finally peak and on whether spending outside of mining will strengthen enough to offset it.

The central bank cut rates to a record-matching low of 3 percent last year in large part to encourage a recovery in non-mining investment, and particularly home building.