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Aussie dollar drops following RBA cash rate decision

Aussie dollar drops following RBA cash rate decision

The Reserve Bank of Australia left the official cash rate on hold at 1.5% after its first board meeting of 2018.

The Reserve Bank of Australia (RBA) kept the official cash rate on hold at 1.5% today after its first board meeting of the year. RBA Governor Philip Lowe’s statement was largely unchanged from December last year, although there were some forecasts added for the future.

“The Bank's central forecast for the Australian economy is for GDP growth to pick up, to average a bit above 3% over the next couple of years,” Lowe said in his statement.

“Inflation is likely to remain low for some time, reflecting low growth in labour costs and strong competition in retailing. A gradual pick-up in inflation is, however, expected as the economy strengthens. The central forecast is for CPI inflation to be a bit above 2% in 2018.”

How did the decision impact the Australian dollar?

Despite much of the RBA’s statement remaining the same, the Australian dollar dropped following the RBA’s decision. At 11.20am (Sydney and Melbourne time) the Australian dollar was trading at 78.88 US cents, by 3.20pm it was trading at 78.48 US cents.

The RBA has indicated that a weaker Australian dollar would benefit the economy.

“On a trade-weighted basis, the Australian dollar 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,” said Lowe.

What does this mean for the property market?

Property prices were part of the decision making process for the RBA in 2017, but concerns they may have had could be easing according to Tim Lawless, Head of Research at CoreLogic.

“With national dwelling values now drifting lower, the RBA can now focus more on economic trends outside of the housing market when contemplating monetary policy settings,” he said.

Lawless added that according to CoreLogic's data, "the heat has come out of the Australian housing market, with national dwelling values falling by 0.7% since peaking in September last year… we expect housing market demand to be supported by low mortgage rates and high rates of population growth, despite the easing in capital growth rates that have been most evident in Sydney and, to a lesser extent, Melbourne dwellings”. 

What next?

The official cash rate has been at the historic low of 1.5% since rates were dropped by 25 basis points in August 2016.

CommSec Chief Economist Craig James said in a note: "The Reserve Bank remains positive but an extended period of stable rates is likely. 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. As the information on this page has been prepared without considering your objectives, financial situation or needs, you should, before acting on the information, consider its appropriateness to your circumstances. Investors should consult a range of resources, and if necessary, seek professional advice, before making investment decisions in regard to their objectives, financial and taxation situations and needs because these have not been taken into account. Past performance is not an indication of future performance. Commonwealth Securities Limited ABN 60 067 254 399 AFSL 238814 (CommSec) is a wholly owned but non-guaranteed subsidiary of the Commonwealth Bank of Australia ABN 48 123 123 124 AFSL 234945 and a Participant of the ASX Group and Chi-X Australia.