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Aussie dollar drops as RBA leaves cash rate on hold

Aussie dollar drops as RBA leaves cash rate on hold

The Australian dollar dropped after the Reserve Bank of Australia made its latest decision on the official cash rate.

The Reserve Bank of Australia (RBA) left the official cash rate on hold at 1.5% for another month after its October board meeting.

In a statement that was largely unchanged from previous months, RBA Governor Philip Lowe spoke about relatively positive conditions for non-mining businesses and employment growth, as well as a strong Australian dollar.

The RBA continues to use the official cash rate to try to slow the appreciation of the Australian dollar against the US dollar. Following the announcement at 2.30pm (Sydney and Melbourne time), the Aussie dropped to trade around 77.96 US cents, having traded at 78.34 US cents earlier in the morning session.

As usual, Lowe also made reference to the property market in his statement.

"Growth in housing debt has been outpacing the slow growth in household incomes for some time. To address the medium-term risks associated with high and rising household indebtedness, APRA (Australian Prudential Regulatory Authority) has introduced a number of supervisory measures. Following some tightening in credit conditions, growth in borrowing by investors has slowed a little recently," he said.

Tim Lawless, Core Logic’s head of research, believes the RBA will be happy with recent movements in the property market.

"The RBA is likely to view the softening in housing market conditions as a welcome outcome and confirmation that macro-prudential measures have done the heavy lifting to cool the rapid pace of capital gains across the Sydney and Melbourne housing markets," said Lawless.
 
"CoreLogic’s hedonic home value index reported the first month-on-month decline in Sydney dwelling values since March last year when the previous round of APRA regulatory changes were flowing through to credit policies and reducing investor participation." 

What can we expect moving forward?

Craig James, chief economist at CommSec, says that there is little reason for a change in the official cash rate in the near future.

“The latest data remains encouraging. Approvals to build new homes are rising and job ads are still perched near the highest levels recorded in six years. The RBA has no reason to cut rates. But still there is no justification to lift rates with wage and price pressures contained," said James.

"The next move in rates is up, but not until later in 2018."

This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Past performance is not an indication of future performance.