Australia’s central bank celebrates second anniversary of policy inactivity

Australian Dollar outlook

The Australian dollar remains within the range that it has been in over the past two years. The Reserve Bank is expected to keep the official cash rate at a 1.75 per cent but its forecasts on growth, inflation and interest rates will be closely watched. The AUD/USD still looks like a good pair to sell on rallies, with the fundamentals remaining bearish for the Aussie currency.

The decision came with a heads up from RBA Governor, Phillip Lowe that there was likely to see a drop in the inflation rate this quarter to lower 2018 CPI inflation to 1.75% from 2.1% in the June quarter (on a headline CPI basis) and almost 2% on an underlying basis.

GBP/AUD Forecast: Political Developments and UK Data in Focus While some Australian ecostats in the coming days could prove influential, developments regarding the Brexit process and United States trade protectionism are more likely to influence the Pound to Australian Dollar exchange rate. Yesterday, the prime minister said, "now, we are the land of droughts", an indication of the current problem.

The bank will have more on its forecasts in Friday's third Statement of Monetary policy for 2018 but the statement yesterday indicates that apart from inflation there won't be too much of a change. It "suggested that interest rates won't rise for a while yet". The GDP for 2018 and 2019 is expected to average slightly above 3 per cent.

Immigration levels have changed year-on-year, with many overseas workers filling skills gaps during the mining investment boom, Dr Lowe said. One continuing source of uncertainty is the outlook for household consumption. The jobless rate is now 5.4%. Therein contained the usual blue-sky analysis of the Australian economy, while touching on the various local and global risks - primarily in the shape of concerns around private debt levels and trade-war fears.

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"Consumer sentiment has a significant impact on the economy and while the latest Westpac Consumer Sentiment survey reported the most positive reading since November 2013, the overall level of sentiment is below the long-term average as consumers continue to feel pressure from sluggish wages, rising electricity and petrol prices and declining dwelling values".

The RBA said Tuesday "the central forecast is for inflation to be higher in 2019 and 2020 than it is currently" but gave no other details. This is largely due to reduced demand by investors as the dynamics of the housing market have changed. Lending standards are also tighter than they were a few years ago, partly reflecting APRA's earlier supervisory measures to help contain the build-up of risk in household balance sheets. "There is competition for borrowers of high credit quality". Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual.

Experts believe the cash rate will remain on hold until at least January 2020.

First home buyers accounted for more than 18 per cent of home loans in June as investors continue to flee the market, down 16 per cent for the year.

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