Although inflation rate remained below 2% since 2012, house prices skyrocketed by nearly 50% in the past 6 years, which is seen as a major risk to the financial system if prices are due to correct.
Advertisement
“The focus of the Reserve Bank I would say is inflation, but if you’re just looking at the labour market then today’s figures don’t argue for a rate cut”.
Australia’s central bank is keeping its policy options open as it predicted the economy probably cooled last quarter, momentum in the jobs market has eased and inflation is set to remain weak. The Australian dollar’s rally, which saw it clock up a seven-week winning streak through July 15, also adds to the case for a rate cut, with Governor Glenn Stevens warning in his last four meetings the appreciating exchange rate could complicate the economy’s transition away from mining investment.
Further catalysing the high-value Australian dollar rally will be the market conditions that support equities, risk assets, and the United States really not hiking rates.
A high-value Australian dollar rally with a 7-long week winning streak riding above 80 USA cents can happen in 2016, according to a leading currency market expert.
Markets are waiting on second-quarter inflation data due July 27 to gauge whether the central bank will ease again in August. It will happen once the US Federal Reserve raises interest rates and Australian central bank too cuts the benchmark.
The figures cover the period before the United Kingdom vote to leave the European Union.
The next board meeting will be held on August 2. Global markets have been considerably anxious about how the move will affect the global economy.
With low inflation of major concern, Australia’s quarterly Consumer Price Index (CPI), the key inflation indicator, will be watched very closely when second quarter results are released next Tuesday. The quarter-on-quarter score improved from 0.2% to 0.4%, letting down 0.5% forecasts. Expectations that the European Central Bank could sound dovish when it meets later in the year also kept the euro 0.2 percent against the dollar at $1.1055.
“Inflation was still expected to remain quite low for some time”, the RBA reiterated after leaving interest rates at a record-low 1.75 percent.
Advertisement
With nothing else of note on the calendar, headlines relating to the Bank of Japan’s monetary policy meeting next Friday, and as a outcome USD/JPY, will likely be influential.
