Australian dollar may suffer on rate cut
Published on 02.10.2018 11:34

As widely expected, the Reserve Bank of Australia in their latest announcement earlier today decided to keep interest rates on hold at 1.5 percent and according to some analysts, we can expect the same result for some time with even the possibility of a rate cut not out of the question.

In the following monetary statement after the rate decision, the RBA offered a better than expected forecast of the Australian economy and especially with regards to the jobs market.

They noted that the unemployment rate remains low and is expected to decrease even further as time goes by

“The outlook for the labour market remains positive. The unemployment rate is trending lower and, at 5.3 per cent, is the lowest in almost six years. The vacancy rate is high and there are reports of skills shortages in some areas. A further gradual decline in the unemployment rate is expected over the next couple of years to around 5 percent” noted RBA governor Philip Lowe

“Wages growth remains low, although it has picked up a little. The improvement in the economy should see some further lift in wages growth over time, although this is likely to be a gradual process” he added.

Some say however that the RBA should forget the jobs market and be more concerned on the property market especially in light of the upcoming royal commission, which is expected to cause immense tightening in lending standards.

This will inflict more pain on an already battered property market with further losses of up to 15 percent possible.

“It’s a significant risk given the difficulty in gauging how severe the tightening in bank lending standards in the face of the royal commission will get and how investors will respond as their capital growth expectations collapse at a time when net rental yields are around 1-2 per cent,” noted AMP Capital chief economist Dr Shane Oliver.

Mr. Oliver is also one of the few analysts who predict that a further rate cut may be needed to shore up the economy and put the real estate sector back on track.

“Home price weakness is at levels where the RBA started cutting rates in 2008 and 2011, so we still can’t rule out the next move in rates being a cut rather than a hike,” he said.

The material published in on this page is produced by the FIBO group companies, and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC; furthermore it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

Andrew Masters

Analyst

The world of trading has no boundaries

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 66% of retail investor accounts lose money when trading CFDs with this broker. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

×

Risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 66% of retail investor accounts lose money when trading CFDs with this broker. Before deciding to trade foreign exchange you should consider whether you understand how CFDs work, your investment objectives, your level of experience and readiness of taking risk. The possibility exists that you could sustain a loss of some or of all of your initial investments and therefore you should not risk more than you are prepared to lose. Please seek independent financial advice if necessary.

Important notice
By clicking "Continue" you will be redirected to the website operated by FIBO Group, LTD company registered in BVI and regulated by FSC. Please familiarize yourself with the Customer Agreement through the link. Click "Cancel" to remain on this page.