In case you were busy catching up on the How I Met Your Mother finale and didn’t get to watch the action during the RBA interest rate decision today, here’s a summary of the main points discussed:
1. No rate cuts in the near future?
As expected, Governor Glenn Stevens announced that the Australian central bank is keeping interest rates on hold at 2.50% for now. After all, as he kept emphasizing in previous monetary policy statements, the effect of their stimulus efforts is just kicking in.
The long period of low interest rates was enough to encourage credit growth and investments in higher-yielding financial instruments. According to the RBA press release, policymakers plan to stick to their accommodative stance to “provide support to demand and help growth to strengthen over time.”
2. AUD appreciation is still a concern.
Judging from the tone of Governor Stevens, one can conclude that he’s still not happy about the Australian dollar’s levels. “The decline in the exchange rate from its highs a year ago will assist in achieving balanced growth in the economy, but less so than previously as a result of the rise over the past few months,” he pointed out. No wonder AUD/USD dropped it like it’s hot during the announcement!
3. More labor market weakness expected
Another factor that spurred a bit of Aussie weakness during the event was the bleak outlook for the labor market. Although Australia was able to keep its jobless rate steady at 6% in February, Stevens mentioned that jobs growth remained weak and that unemployment will rise a little further in the near term.
I seem to recall a recent instance wherein the RBA mentioned that hiring will pick up, which was then followed by a stronger than expected employment change report. Perhaps we’ll see a weak reading for March? Hint, hint!
4. Housing sector to keep expanding
Lastly, the RBA also highlighted the progress in the housing sector, confirming that the central bank’s easing efforts are having their intended effect. Analysts remarked that this should help the government achieve its goal of rebalancing the Australian economy, as the pick-up in housing compensated for the slowdown in mining for the past few months.
All in all, it appears that Stevens and his men are confident about the state of the Australian economy. Despite the possible slowdown in China, the RBA remains one of the more hawkish major central banks. Given these takeaways from the RBA statement though, do you think AUD/USD can extend its rally? Cast your votes in our poll below!