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Aussie Pressured Again as RBA Slashes Forecasts

James Hyerczyk
RBA Governor Philip Lowe earlier this week vacated a policy tightening bias and instead sees the chances of an interest-rate cut or a hike as “more evenly balanced”. However, the RBA board does not see a strong case to move rates in the near-term.

The Reserve Bank of Australia (RBA) delivered the news it had hinted at earlier in the week when it cut its forecast for the country’s growth amid several concerns including weak consumption growth, global trade tension and lower expectations for the Chinese economy. The Australian Dollar is often viewed as a proxy for China’s economy.

The news drove the AUD/USD to .7061, a level not touched since January 4. It is now in a position to turn lower for the year on a trade through .7052. In six trading sessions, the Aussie has nearly erased all of the gains that took it to .7296 on January 31.

Highlights from the RBA Statement on Monetary Policy

Earlier this week, the RBA kept its cash rate at a record-low 1.5 percent for a 30th month but dropped its long-standing prediction that an improving economy meant the next move was likely to be upwards.

In its monetary policy statement released early Friday, the RBA lowered its forecast for gross domestic product (GDP) growth for the year to the end of June to 2.5 percent, down from 3.25 percent.

The RBA also slashed its inflation forecast for the 12 months to June 30 from 2 to 1.25 percent.

The central bank also cited slowing growth in other advanced economies, sluggish consumer spending and the ongoing property market correction.

“This reassessment of the outlook for consumption is informed by the downward revision in the national accounts and, to some extent, the recent declines in housing market activity,” the RBA said in the quarterly statement.

The RBA also highlighted the slow growth among Australia’s major trading partners. It said that growth slowed more than expected in the second half of 2018 due to ongoing trade tension involving the U.S. remaining a downside risk.

“The outlook for the global economy has become more uncertain, partly because it is hard to predict how trade policies might evolve and how much support stimulatory policies will provide to domestic demand, especially in China,” it said.

In China a range of indicators “suggest a more pronounced slowing in momentum,” the central bank said, adding that “Some of the slowing stems from efforts to rein in shadow financing as well as the effects of recent tariff increases on bilateral trade with the United States.”

Traders Pricing in Potential Rate Cut

RBA Governor Philip Lowe earlier this week vacated a policy tightening bias and instead sees the chances of an interest-rate cut or a hike as “more evenly balanced”. However, the RBA board does not see a strong case to move rates in the near-term.

Given the dovish comments this week from Dr. Lowe and the RBA policymakers, futures traders are beginning to price in as many as two rate cuts later this year.

This article was originally posted on FX Empire

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