Talking Points:
- The Australian Dollar was steady after the RBA’s Statement on Monetary Policy
- Near term growth forecasts were trimmed, but further out they remain chunky
- The rates-on-hold thesis is intact
The Australian Dollar was steady on Friday as the Reserve Bank of Australia trimmed its near-term growth forecasts, but remained upbeat about the further future
The central bank’s Statement on Monetary Policy (SoMP) is released four times every year and contains an assessment of current economic conditions, along with the outlook for inflation and growth.
Friday’s edition seemed to have something for both Aussie bulls and bears. It saw the RBA’s growth forecast for the year to June 2017 trimmed by one percentage point to a range of 1.5%-2.5%. However, the central bank kept its 2018 growth call unchanged at 2.5%-3.5%. Its year to June 2019 forecast was 2.75%-3.75%, which is chunky by developed-market standards.
The RBA said that growth seemed to have rebounded in the final quarter of 2016 and that the third quarter’s once-ominous weakness now looks to have been a blip. It also feels that the growth outlook has improved for Australia’s major trading partners but that recent high commodity prices were unlikely to be sustained. The central bank also doubted that economic growth would be enough to pull the Australian jobless rate down by much.
The central bank forecasts underlying inflation at 1.75% in the year to June 2017 and expects it to fall within the 1.5-2.5% range in the 12 months ending December 2018. Price growth is expected to rest comfortably within the 2-3% target band in the year to June 2019.
All up then, there was little here to dent the prevailing thesis that, while Australian interest rates might not be cut any further from the current 1.75% record low, they probably won’t be going up anytime soon either. This scenario was already underpinned by comments which followed the RBA’s decision to leave those rates alone earlier this week.
AUD/USD got up to 0.76261 after the release from 0.76210 beforehand. However, it had slid just before the report saw daylight and remains confined to its weekly range.
Up, but not by much: AUD/USD
Chart compiled using TradingView
Other Australian data released at the same time showed that home loans rose by 0.4% on the month in December while investment lending fell 1%. These were both weaker than expected but – in the case of investment lending, at least – may simply be a retreat from previously high levels.
What might the year’s first quarter hold? DailyFX analysts have their cards on the table. Check out their forecasts here.
--- Written by David Cottle, DailyFX Research
Contact and follow David on Twitter: @DavidCottleFX
