Aussie Dollar Update

Reserve Bank of Australia (RBA)

Still no policy changes!
For a sixth month in a row since cutting it in August, the RBA’s interest rates remains at 1.50%.

Apparently, Philip Lowe and his gang believe that “holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.” Not really surprising after Lowe has all but said that they’re done cutting rates for now!

The global economy is fine
The RBA barely made any changes from its outlook last month. It still believes that improvements in the global economy have boosted commodity prices, which have provided “significant” boosts to Australia’s income. It’s also still iffy about China’s recovery, saying that the composition of growth and the pace of borrowing still pose risks. Lastly, it recognized that higher inflation rates are partly due to higher commodity prices.

Ditto for the domestic economy
The central bank noted that the economy is “continuing its transition” from the mining boom by growing by 2.50% in 2016. It nodded to exports that have “risen strongly”as well as “non-mining business investment that has risen over the past year.”

The RBA also emphasized that its optimistic outlook is supported by low interest rates and exchange rates. It repeated that the Aussie’s depreciation since 2013 has “assisted the economy” from the mining boom, and that a stronger Aussie would “complicate” the adjustment.”

As for the labor market, the RBA still thinks indicators are mixed, but this time it conceded that employment growth is concentrated in part-time jobs. This, as well as the subdued labor cost growth, is why the central bank expects underlying inflation “to stay low for some time” even as headline inflation is expected to hit above 2.0% in 2017.

AUD bulls saw red
Remember market players were mostly expecting the RBA to strike against the Aussie’s recent gains by jawboning a bit.

But with Lowe and his team mostly maintaining their stance last month, traders have moved on to expect rate hikes from the central bank this year. After the release, futures pricing showed a 33.3% (up from 29.9%) possibility of a rate hike before 2017 while rate cut speculations slipped from 3.4% to 3.3%. Not surprisingly, the Aussie ended the day higher against its counterparts.


The Pinstripe and Bowler Club shares information with MF Solutions Ltd.