RBA gives mixed signals for Australian dollar

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The Australian dollar has pulled back in today’s trading, giving up the gains made yesterday on the back of neutral stance from the Reserve Bank of Australia on the state of the local economy.

In their latest interest rate meeting yesterday, the RBA kept rates on hold at 1.5 percent which was widely expected by the market but it was the following statement that sent mixed signals to investors that caused the Aussie dollar to climb on the statement, then retreat as the trading day unfolds today.

RBA Governor Philip Lowe noted that although the central bank expects GDP to pick up over the next year, inflation remains a concern and we may see a figure below the RBA’s target rate for quite some time,

“Inflation remains low, with both CPI and underlying inflation running a little below 2 per cent. In underlying terms, inflation is likely to remain low for some time, reflecting the slow growth in labour costs and increased competitive pressures, especially in retailing” Mr Lowe said.

Traders may have exited the Australian dollar today while awaiting a statement on Friday by the RBA when they present their outlook for the Australian economy with some predicting that it will be more bearish than yesterday’s forecast and especially regarding inflation.

"Friday’s RBA quarterly Statement on Monetary Policy can further weigh on Australian interest rate expectations and undermine the Australian dollar,” says Elias Haddad, a strategist at Commonwealth Bank of Australia.

“In the wake of both Q3 CPI measures undershooting RBA and market expectations there could be some modest trimming to the RBA’s near term underlying inflation forecasts in the SMP,” he added.


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