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Aussie dollar stays strong following RBA decision

Aussie dollar stays strong following RBA decision

The Australian dollar held recent gains against the US dollar as the Reserve Bank of Australia kept the official cash rate on hold.

The Australian dollar remained above 80 US cents following the Reserve Bank of Australia’s decision to leave the official cash rate on hold at 1.5% for another month.

The Australian dollar was trading of 80.43 US cents a few hours before the RBA’s announcement and by 3.30pm (AEST) was trading at 80.19 US cents.

RBA Governor Philip Lowe’s statement was largely unchanged from last month, but he did speak about the current movements of the Australian dollar.

“The Australian dollar has appreciated recently, partly reflecting a lower US dollar. The higher exchange rate is expected to contribute to subdued price pressures in the economy,” Lowe said.

“It is also weighing on the outlook for output and employment. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.”

The move to keep the official cash rate on hold came as no surprise given the stronger Australian dollar and also the recent performance of the economy. Savanth Sebastian, senior economist at CommSec, believes it's likely conditions will remain the same in the short term.

“The latest economic news is generally positive. Manufacturing is expanding solidly although the stronger Australian dollar may provide more of a headwind in coming months. The RBA has no need to lift or cut rates as yet. Rate hikes are still more likely to come later in 2018,” Sebastian said.

What are the recent economic results?

In his statement, Lowe spoke of increased commodity prices, employment growth and varied housing markets across the country.

Tim Lawless, CoreLogic’s head of research, believes the housing market was likely a big part of the RBA’s discussion in the lead up to the decision to keep the cash rate on hold.

Recent data from CoreLogic’s Home Value Index found that capital city home prices rose by 1.5% in July and are up 10.5% over the last year, while home prices in regional Australia rose 0.2% in July and are up 5.4% over the last year.

“CoreLogic’s Home Value Index showed a strong capital gain result in June and July, however the trend rate of growth suggests that the hottest markets, Sydney and Melbourne, have lost some steam after the first quarter of 2017,” Lawless said.

“The slowdown in housing market conditions can also be seen in softer auction clearance rates relative to earlier in the year as well as higher inventory levels, which is taking some of the urgency away from buyers.”

Outside of the property market, consumer confidence and employment are currently favourable for the Australian economy.

“Policymakers would be encouraged by the surge in consumer confidence. Confidence levels are now holding at five-month highs, and if sustained, should be good news for retailers – especially in light of cheaper petrol prices,” said Sebastian.

In his statement Lowe noted that while employment growth has been strong over the past few months, wage growth remains low and “this is likely to continue for a while yet”.

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.