The Australian dollar edged lower against its major peers on Tuesday, as it surrenders to selling pressure by way of the Reserve Bank of Australia’s (RBA) decision to leave official cash rate unchanged.
The currency lost 0.06 percent to 0.7872 against its American counterpart, after recording its lowest since January 11 of 0.7861 earlier in the day.
RBA’s decision had little impact on the Aussie, while financial markets see no significant chance of a rate hike until the second half of the year.
The greenback was down 0.08 percent to 109.00 against the yen, while the euro gained 0.2 percent to 1.2400 against the dollar. The British pound added 0.04 percent to 1.3963 against the US currency as well.
The kiwi climbed 0.5 percent to 0.7308 against the greenback, moving further away from its 2-1/2-week decline of 0.7261, as the dollar took a short break after hitting nearly a 2-week high due to a positive US jobs report.
RBA Holds Rates Steady
Australia’s central bank on Tuesday held interest rates steady for the 16th consecutive meeting, defying the global change among central banks to hike rates, despite concerns over the country’s soft inflation and an uncertain household spending outlook.
Marking as RBA’s longest run of inaction in almost 22 years, the bank kept cash rate at a record low of 1.50 percent as widely expected. It has remained at this level since August 2016.
The bank showed no need to follow the US Federal Reserve, the Bank of England (BOE), and the European Central Bank’s (ECB) move of adjusting monetary policies.
RBA Governor Philip Lowe said that the current monetary policy was supporting Australia’s economic growth and that they expect further progress in reducing unemployment and inflation to gradually return to target.
Core inflation is currently at an annual 1.9 percent, just slightly lower than the bank’s target range of 2 to 3 percent, but still surpassed its own forecast of 1.75 percent. This might suggest that RBA has a more optimistic view of Australia’s inflation than many give it credit for.
However, doubts still linger over the outlook for household spending, with household income having a sluggish growth and high debt levels.
A stronger Australian dollar is also another concern for RBA, given that an optimistic exchange rate could hinder economic activity and inflation.
Lowe stated that lower wage growth is likely to continue for a while, but may eventually improve due to a stronger economy.
RBA forecasts a 3 percent and higher gross domestic product growth over the next couple of years.
Higher wages in the coming quarters could give the bank reason to implement its first interest rate hike in the September quarter since 2010.
Without wages growth, the odds to see higher consumer spending remains low. Consumer price index (CPI) is estimated to rise above 2 percent in 2018.
Still, some economists expressed doubt over the possibility of RBA lifting interest rates in the near term.
The market gave a 50 percent probability of a rate hike in August before Tuesday’s statement, but fell to 30 percent after the announcement, suggesting that the broader market became less confident in its outlook for interest rates.
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