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Just until yesterday, many analysts had been expecting the RBA to sit tight at 1.5% cash rate for some time and the central bank also delivered as anticipated.
It seemed a little more optimistic about the economy, commodity prices, and the housing market, but was a little more cautious about employment. It can start into its two month’s summer break in a relaxed manner anyway as the undesirable uptrend sentiments in AUD likely to prolong.
Upside-down projection: The Australian economy unexpectedly declined 0.5 pct in the third quarter of 2016, compared to an upwardly revised 0.6 pct growth in the June quarter and missing market consensus of a 0.3 pct expansion. It was the first contraction since the March quarter 2011 and the fastest fall since the December quarter 2008. Through the year, the economy grew by 1.8 pct, slowing sharply from a 3.3 pct expansion in the June quarter while market estimated a 2.5 pct growth. It was the weakest growth since the first quarter 2013.
As a result, the RBA’s monetary policy would remain expansionary; more easing cycle is on cards. In other words, the Aussie central bank members can make the most of the summer break, rate hikes in Australia are not foreseeable for now: inflation remains below the RBA’s inflation target and will rise only slowly.
Thanks to rising US inflation: Consumer prices in the United States went up 1.6 pct year-on-year in October of 2016, up from a 1.5 pct rise in September and in line with market expectations. It is the highest inflation rate since October of 2014, boosted by rising shelter and energy cost while food prices declined for the second month.
While Q3 GDP in the US managed to produce more than expected numbers, (actual 3.2% versus forecasts at 3.0% and previous 2.9%).
Thus, the US dollar has had an impressive rise since the US election and has potential to rise further during the months ahead, not least because the Fed would probably hike in December but also more hikes in 2017. Against that, coal and iron ore are more likely to sustain their dramatic rises during the months ahead. We target AUDUSD at 0.73.
The US dollar staged a minor rebound overnight amid little news flow of market interest. Next week’s FOMC meeting is the main focus.
