At 2:30pm local time (GMT+11) on Tuesday, the Reserve Bank of Australia will announce its latest decision on interest rates. No change is expected to the RBA’s cash rate which has been held at a record low of 1.5% since August 2016, and therefore, once again, the spotlight will be shone on the RBA’s accompanying statement on monetary policy.
Since the RBA’s last meeting on September 4th, the Australian dollar has fallen 1.4% versus the US dollar, to rates on Tuesday morning close to $0.7825, and by 0.1% against the euro, to €0.667. Against the British pound, which has been ignited by hawkish rhetoric from the Bank of England, the Australian dollar has lost a hefty 4% since the RBA’s last meeting, to rates on Tuesday just below £0.59.
The past month’s wobble in the Australian dollar will please decision makers at the RBA, who in recent months have expressed unease about the Australian dollar’s mid-year climb. After the Aussie appreciated 10% against the US dollar between early May and late July, the bank added the following to their August and September statements:
“The higher [AUD] exchange rate is expected to contribute to the subdued price pressures in the economy. 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.”
Perhaps to the disappointment of the RBA, in the long term the Australian dollar is heading in only one direction against the US dollar, according to Dutch bank ABN Amro. The bank expressed “strong conviction” in September when they forecast a rise in AUD/USD to $0.9 by the end of 2018.
Further to any mention of exchange rates, important messages in today’s RBA statement will likely relate to the domestic labour and housing markets.
In September, the RBA said that “forward-looking indicators point to solid growth in employment over the period ahead” but that Australia’s ongoing struggle with stagnant wage growth was “likely to continue for a while yet.”
Australia added an impressive 54,000 new jobs in August (data released mid-September); way above the market forecast for 17,500 jobs and July’s increase of 29,000.
The Australian Bureau of Statistics won’t release the Wage Price Index for the third quarter until November 14th. Wages in the second quarter had grown 0.5%, at an unchanged pace from that in the first quarter.
David Scutt of the Business Insider believes that recent data makes it “likely that the RBA will keep a similar assessment [on the labour market] today,” and that “if there is a change, it’s to express more confidence when it comes to the outlook for labour market conditions.”
Likewise, the RBA’s message on the housing market is unlikely to be much changed.
In September, the RBA said that “there are signs that conditions [in the housing market] are easing, especially in Sydney.”
Data on Monday from property researchers CoreLogic showed Sydney home prices falling for the first time in seventeen months, albeit by only 0.1%, and quarterly nationwide capital growth slowing to just 0.7% (this had been as high as 3.5% in December). Although prices in Melbourne are still climbing (+0.9% in September), CoreLogic data suggests that Australia’s overheated east coast property markets are starting to run out of gas, and this will please the RBA.