Unsurprisingly the Reserve Bank of Australia has left the cash rate unchanged at 2.5%, after its board meeting this morning.
Rates look like they are on hold for some time yet, with a period of stability flagged by the central bank. But that said, the RBA appears to be happy with the economy at the moment.
Last month, the Australian dollar soared three cents after there was no mention of the AUD’s overvalue in the statement. With this in mind, and given the current state of geopolitical turmoil, traders have been waiting to see whether they would mention the currency, growth or inflation today.
On the Currency: The RBA said the Australian dollar remained high by historical standards, but that the “decline in the exchange rate seen to date will assist in achieving balanced growth in the economy.”
On growth: They stress that financial conditions (read interest rates plus the currency) “remain very accommodative” and that consumer demand is improving.
This “foreshadows a solid expansion in housing construction” even though “resources sector investment spending is set to decline significantly and, at this stage, signs of improvement in investment intentions in other sectors are only tentative”.
The RBA is also clearly concerned that the demand for labour “has remained weak” and that unemployment will probably rise further before it peaks.
But the key point is that the RBA believes, in summing everything up, that the Australian economy is moving in the right direction and that: “Over time, growth is expected to strengthen, helped by continued low interest rates and the lower exchange rate.”
You can read the full statement here
Disclaimer: Greg McKenna is an active Currency trader who is currently short the Aussie dollar because he agrees with the Reserve Bank