Monday, August 4, 2014

Nothing new from Aussie central bank | Oz balance of trade improves

The Australian central bank, the Reserve Bank of Australia (RBA), decided, as widely expected, to keep interest rates on hold last night. Furthermore, it also said precisely nothing in the policy statement accompanying the announcement that would have the effect of moving the currency. The following is part of the statement by the governor, Glenn Stevens:

“The increase in dwelling prices has been slower this year than last year, though prices continue to rise. The exchange rate remains high by historical standards, particularly given the declines in key commodity prices, and hence is offering less assistance than it might in achieving balanced growth in the economy.

Looking ahead, continued accommodative monetary policy should provide support to demand and help growth to strengthen over time. Inflation is expected to be consistent with the 2–3 per cent target over the next two years.

In the Board’s judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates”.

On the surface, the RBA would prefer a weaker Australian dollar. However, this can only come about in a limited number of ways, and the most effective would be a lowering of interest rates. The bank has not wanted to do that because of fears of a consequent property bubble. This statement seems to be telling us, if it is telling us anything, that they are happy with the status quo, even if that includes an Aussie dollar that “…remains high by historical standards”.

Oz balance of trade improves

The other announcement Down Under last night was on the Australian Balance of Trade. This has improved from a negative AUD 2 Billion to a negative AUD1.68 Billion as against minus AUD1.9 Billion expected.

This is an excellent outturn and, in the absence of any measures to weaken the currency by the RBA, should be a positive for the currency.

Australian monetary authorities seem, once again, to be relying on external factors, like the decisions of the US Federal Reserve, to influence its currency exchange rate.

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