RBA/Fed crush Australian dollar
Published on 18.07.2018 16:10

The Australian dollar is under further pressure today after yesterdays dovish stement from the RBA and a bullish statement from the Head of the US Federal Reserve.

In their statement yesterday, the RBA noted that the trade war that is brewing at the moment between the US and China has the potential to cause substantial damage to the global economy and countries such as Australia will feel the brunt of the hit because of its close connection from China.

The Central bank already had reservations about the state of the Australian economy before the trade wars started so this situation has only exacerbated the problem and most likely caused further delays in lifting interest rates

"The minutes of the Reserve Bank of Australia's July meeting confirm that the bank is a long way from raising interest rates and that it is worrying more about a global trade war, the slowdown in China and the high level of domestic debt at home," said Paul Dales of Capital Economics

"If anything, July's minutes support other evidence that the RBA is becoming a bit more concerned about the outlook." He added.

Other factors which hit the Aussie dollar was the release of industrial production figures yesterday from the US, that came in at 0.6 percent and was a sharp rebound from the previous months figure of -0.5 percent and shows that business confidence is powering ahead.

This thought, along with a strong jobs market as well as inflation numbers was backed up yesterday in a speech by US Federal Reserve Chair Jerome Powell who noted that the US economy is in great shape and the only way forward is higher interest rates.

“With appropriate monetary policy, the job market will remain strong and inflation will stay near 2% over the next several years,” Powell told the US Senate Banking Committee.

“With a strong job market, inflation close to our objective, and the risks to the outlook roughly balanced, the FOMC believes that for now the best way forward is to keep gradually raising the federal funds rate.” He added.

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Andrew Masters

Analyst

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