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Strong dollar imperils economy and jobs, RBA warns

Strong dollar imperils economy and jobs, RBA warns

Australian Dollar's (AUD) Slumps Following RBA Rate DecisionThe "Aussie" initially rallied overnight on Monday as an unexpected rise in Australia's latest Manufacturing PMI and a 7% jump in iron ore markets helped to drive market sentiment higher.

The decision at Tuesday's board meeting comes ahead of the release of the RBA's Quarterly Statement on Monetary Policy on Friday, which is expected to explain more of the board's rationale.

"Our view remains that the RBA will be on hold for the next year at least, with risks around the consumer, a housing slowdown, inflation and the Australian dollar preventing hikes but a fading in the drag from the mining investment slump and solid employment growth heading off cuts". According to RBA, one source of uncertainty for domestic economy is the outlook for consumption.

"Retail sales have picked up recently, but slow growth in real wages and high levels of household debt are likely to constrain growth in spending", he said.

"The Australian dollar has appreciated recently, partly reflecting a lower US dollar". They expect unemployment rate would slightly go down over the next couple of years from the current 5.6 percent.

The recent inflation data were broadly as the Bank expected.

Despite the bank's concern over recent strength in the Australian dollar, the broader economy has improved in recent months. A factor working in the other direction is increased competition from new entrants in the retail industry.

"It is also weighing on the outlook for output and employment". It would also cause the progress in economic activity and inflation to be slower than predicted.

The Reserve Bank signalled that it was not particularly anxious about housing prices, saying they were rising briskly in some markets, albeit more slowly.

But monthly house price data yesterday from Corelogic showed that prices in Melbourne had risen by 3.1 per cent in July while Sydney prices jumped 1.4 per cent and Canberra was up 2.4 per cent. Brisbane prices fell but the average capital city price rise for the month was 1.5 per cent.

Meanwhile, the S&P/ASX 200 index traded 0.35 percent lower at 5,690.50 by 03:50 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at -11.95 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). Lowe said that growth in housing debt has been beating the sluggish climb in household incomes. Taking account of the available information, 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.


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