01 August, 2017
The Reserve Bank of Australia (RBA) said it expected the higher exchange rate between the Australian dollar and its USA counterpart was expected to keep price pressures subdued but was also weighing on the outlook for output and employment.
Chris Schade, senior business analyst at non-major lender MyState, said that below trend economic performance and a high Australian dollar meant the current interest rate setting remained appropriate. The spread between the U.S. and Australian 10-year bond yields has historically served as a key indicator for the Aussie dollar; if the spread continues to widen, I still see further appreciation in AUDUSD. Although jobs growth is picking up and the unemployment rate is expected to edge lower over the next couple of years, wages growth remains feeble.
The Reserve Bank has left the cash rate at 1.50 per cent. "With employment levels also steady, this is good news for the property market on the whole", said Ms Pilkington.
"The higher exchange rate is expected to contribute to subdued price pressures in the economy", he said.
The gains in the Aussie have largely come as the US dollar slid to 13-month lows last week against a basket of currencies.
Whether that will translate to a specific change in the bank's commentary on the Aussie remains a hot talking point across markets. In fact the statement was one of the longest in recent history with the Reserve Bank providing significant detail on an array of topics.
The central bank's monetary policy statement is due 12:30pm HK/SIN.
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Commonwealth Bank of Australia's chief economist Michael Blythe said the prospect of a hike was "unlikely before late 2018". But, last week's data showed that the bank is still far from its 2 to 3 percent inflation target.
In its July statement it said that "indicators of the labour market remain mixed" with forward-looking indicators pointing to "continued growth in employment over the period ahead".
The bank said in its statement: "Retail sales have picked up recently, but slow growth in real wages and high levels of household debt are likely to constrain growth in spending".
On Australia's housing market - the other big area for policy deliberations in mid-2017 - the bank is likely to maintain a similar view to that offered a month ago given very little has actually changed.
He also mentioned that problems still existed despite regulatory efforts to rein in rising levels of household debt. There has also been some tightening of credit conditions following recent supervisory measures to address the risks associated with high and rising levels of household indebtedness. The bank had reduced the rate by 25-basis points each in August and May past year.
On the monetary policy, RBA reiterated that "taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time". The IMF last month reaffirmed its forecast that the world economy would expand 3.5 percent this year, up from 3.2 percent in 2016.