Cart: $0.00 - (0 items )

Australian dollar slides as RBA declines to give hawkish hints

The Australian dollar was falling as trading got underway in Europe following the Reserve Bank of Australia’s decision to hold rates pat and shy away from the recent trend of increasingly hawkish comments from central bankers.

The currency was 0.7 per cent weaker against the dollar at $0.7607 after the central bank kept rates on hold at 1.5 per cent for the 10th consecutive meeting. Investors had been waiting for the RBA decision to see if the central bank would adopt the change in tone recently adopted by global central bankers.

Comments made last week by European Central Bank president Mario Draghi, Bank of England governor Mark Carney and Bank of Canada Stephen Poloz convinced many investors the post-crisis era of easy money was coming to an end. Mr Draghi sent the euro to its highest level this year on Tuesday after investors interpreted his comments as as signal the ECB was to phase out its economic stimulus measures. The BoE’s Mr Carney said on Wednesday “some removal of monetary stimulus is likely to become necessary” while his Canadian counterpart remarked rate cuts have “done their job”.

RBA governor Philip Lowe’s comments did not put him among that growing pack as he repeated the line that “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 RBA said the Australian economy is expected to strengthen gradually, but said consumption growth remains subdued linked to slow growth in real wages and high levels of household debt.

Capital Economics expects rates to remain on hold throughout the rest of 2017 and into 2018.

All told, while the RBA remains upbeat on the economic situation we don’t think this means that interest rate hikes are imminent. Indeed, the issue of persistently low underlying inflation is likely to prevent the RBA from beginning to hike rates until 2019.