RBA Boss Confirms Easing Bias Ahead Of June Meeting

23 May, 2019, 05:55 | Author: Regina Silva
  • AUD  USD Downtrend Eyed as RBA Minutes Hint Rate Cut Possibility

The Aussie was pinned at US$0.6883, just a whisker above its recent rough of US$0.6865 and well off the US$0.6934 top briefly reached at the start of the week.

See live rates for the NZ-US $ below.

The Australian dollar slipped against its US counterpart on Tuesday in Asia after the Reserve Bank of Australia hinted that it would consider a case for a rate cut in June.

A bevy of economists including those from Westpac and Commonwealth Bank rushed to revise their rate calls to a cut in June.

Lowe told his audience the RBA recently considered what it could do if a further improvement in the labour market fails to materialise during the months ahead, and said the board judged that this would likely demand a rate cut.

The Bank may choose to persist with overly optimistic forecasts but will need to ease again to emphasise its inflation targeting credentials.

He said there was a range of options to help cut the jobless rate. At the same time, inflation has remained under the RBA's 2-3 per cent target band and the unemployment rate has now ticked up to an eight-month high of 5.2 per cent from decade lows of 4.9 per cent hit in February.

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Signs are domestic activity likely slowed in the three-months ended March to an annual 1.7 per cent, the weakest since the 2008 global financial crisis.

The Australian dollar came under further pressure in yesterday's trading session as expectations grew the Reserve Bank of Australia is gearing up to slash interest rates next month with the chances of such a move predict by analysts now sitting at more than 90 percent.

The board agreed that this would require a rate cut, which they say would stimulate the economy by forcing Aussie exchange rates lower and reducing existing borrowing costs for households and businesses.

The combination of lower interest rates and easy lending rules could help revive the country's crumbling housing market where prices are down nearly 10 per cent from their 2017 highs.

The Governor's thinking has evolved over the year to accept that, as we have observed in other countries, upside inflation risks are consistent with a lower unemployment rate than had previously been assessed.

Taxes paid by households over the past year jumped 10 per cent, a much faster clip than income growth of a measly 3.25 per cent, he noted.

Secondly, we expect that the June quarter trimmed mean inflation print (released on July 31) will be 0.4% indicating that underlying inflation will print 0.7% for the first half of 2019, making it hard to persist with a 1.75% forecast for underlying inflation in 2019 - downgrading the underlying inflation forecast to 1.5% in 2019 will make it hard for the RBA to credibly forecast a return to 2% inflation in 2020.

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