The Reserve Bank of Australia (RBA) released the monetary policy statement today. As expected, the bank left interest rates unchanged at 1.50% and signalled that the low interest policy will remain for the foreseeable future. All the 25 economists polled by Bloomberg said that they expected the rates to remain unchanged. The last time the RBA moved interest rates was in 2016 when it lowered them to 1.5% from the previous 1.75%. In response to the rate decision, the Aussie dropped sharply as shown in the five-minute chart below.
In the statement, the bank said that the global economy was continuing to grow, supported by expansionary central banks. In the developed countries, only the Federal Reserve is in a hawkish tone. The BOE is in a wait and see while the ECB has said that a rate hike will happen possibly in the summer of 2019. The Bank of Japan has said that the rates will remain lower while the RBNZ pointed to a sustained period of low interest rates. At the same time, the SNB has pointed to low interest rates.
The bank also issued concerns about international trade. As an export-driven economy, Australia relies heavily on the conditions in the international markets. Therefore, any weakness in global trade has immediate impacts to the country. Last week, the trade conflict between the US and China escalated as the two countries imposed tariffs on each other. On a positive side, the US ironed out the remaining issued with Canada. This leaves a space for optimism in international trade as the US continues to negotiate with the EU and Japan. China has said that it will halt all negotiations until after mid-terms.
The bank expects the Australian economy to grow by 3 per cent in 2018 and 2019. This was as it had previously announced. It also remained optimistic about the Australian businesses with the non-mining sector expected to remain positive. Increased spending by the government will also help the country. However, the bank was concerned about the terms of trade which continued to increase due to commodity prices. On inflation, the bank said the following:
Inflation is around 2 per cent. The central forecast is for inflation to be higher in 2019 and 2020 than it is currently. In the interim, once-off declines in some administered prices in the September quarter are expected to result in inflation in 2018 being a little lower than otherwise.
Therefore, with the Fed continuing to increase rates, and with the Australian central bank remaining dovish, the AUD is likely to continue weakening.
The post Aussie Falls After RBA Leaves Rates Unchanged appeared first on Forex.Info.
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