RBA Policy Decision: Rising AUD Could Complicate Economic Transition

Earlier this morning, the Reserve Bank of Australia decided to keep the current policy unchanged, including the Cash Rate which remained at a record low at 1.5% as widely expected.

However, the statement showed a balanced tone, which kept the market uncertain regarding the next decisions, leading to a slight gain in AUD pairs, which remains positive on the day, but eased some of these early gains.

RBA Official Cash Rate

Statement Key Points

Rising Australian dollar could complicate economic transition

Global economic conditions have improved over recent months

Unchanged policy consistent with growth, inflation targets

Labour indicators have been mixed

Higher commodity prices have supported a rise in Australia’s national income

Headline inflation expected to pick up over the course of 2017

House prices rising briskly in some markets

US rates expected to rise further, no longer expectations of further easing in other major economies

Australian economy continuing to transition after mining boom

Medium-term risks to China growth remain

RBA Chairman Philip Lowe Remarks

“House prices rising briskly in some markets” – this reiterating the risks already stated – to financial stability and also to household spending

“labour indicators have been mixed” – low wage growth and how this is impacting on spending is a key RBA concern

What Do We Know?

Today’s decision and statement show that the Reserve Bank of Australia believes that the economy is doing well and there might be no need for further easing.

They haven’t even mentioned easing in their statement today, which lead the market estimates for further easing this year to disappear, which explains why the Aussie advanced across the board.

However, this doesn’t mean that the Aussie is set to rally. The RBA is concerned about the Aussie strength as noted above, which means that the bank will be ready to act when needed.