Weak commodity price put downside pressure on Aussie

The Australian dollar remains very sensitive to moves in oil prices. Apart from Oil, lower iron ore, coal and other metals' prices, continue to point to a downward adjustment of the Aussie's exchange rate. Commodity prices on world markets are also falling, driving the need for devaluation. Lower prices for important Australian exports such as iron ore and coal will lead to an expected fall in the terms of trade. 

According to RBA, inflation forecast has been revised down a little since the previous Statement, reflecting the fall in oil prices and the slightly weaker near-term outlook for product and labour markets, which more than offset the upward price pressures from further exchange rate depreciation. Headline inflation is expected to remain below the 2 to 3 per cent target in year ended terms over much of 2015, before picking up a bit to be consistent with the inflation target. While looking at the current situation domestic price pressures remain very subdued and below 1% yoy in Q3. However, inflation expectations have remained well anchored in the face of significant relative price adjustments, including large exchange rate movements, over the inflation-targeting period.