RBA to welcome a weaker AUD – AmpGFX

The RBA might quite like a weaker AUD to help bring forward the date when it gets to lift rates, according to Greg Gibbs, Analyst at Amplifying Global FX Capital. 

Key Quotes

“The RBA said in its policy statement on Tuesday that, “The Australian dollar has depreciated a little recently, but on a trade-weighted basis remains within the range that it has been in over the past two years. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.”

“Apart from noting its recent depreciation, this has been its standard statement for some time.  The RBA is not against further depreciation of the currency, which would help lift inflation that is below its target range.”

“The RBA said, “Inflation is likely to remain low for some time, reflecting low growth in labour costs and strong competition in retailing.”

“RBA Governor Lowe noted in a speech on Tuesday that the target policy cash rate has been unchanged at a record low of 1.5% for a record length of time - 21 months.  You get the impression that he is quite looking forward to the day when he gets to hike rates for the first time in his tenure.  He has said on various occasions this year that “it is reasonable to expect that the next move in interest rates will be up.”

“However, on the RBA’s current forecasts, a hike is not likely for quite some time. Lowe said, “In our discussions today, though, the Board again agreed that there was not a strong case for a near-term adjustment in the cash rate.”

“The RBA might quite like a weaker AUD to help bring forward the date when it gets to lift rates.  The RBA has in recent years been reluctant to cut rates for fear of exacerbating household debt and financial stability risks.”