On Tuesday the Reserve Bank of Australia decided to keep interest rates on hold once again.
It was an expected result, but overall tone was somewhat upbeat. RBA Governor Philip Lowe seems to believe inflation has finally bottomed-out and could be on the up over the next few years. Which ties in nicely for the RBA’s positive outlook for the wider global economy.
Yet there are still some rather ominous dark clouds looming. Low wage growth and high household debt could still rain on the RBA’s mild celebrations.
Another troublesome nuisance is the rather frivolous Aussie dollar. The RBA just can’t seem to get this sucker down.
Aussie Dollar Forecast
The dollar creeped higher against the greenback overnight, even peaking over US 80 cents at one stage. It came as the US dollar slid lower, and an uptick in commodity prices. It has since slid back under the US 80 cent mark, but some analysts believe it will rise again.
The Commonwealth Bank already forecast the dollar to hit the US 80 cent mark by the end of this year. And they think it could climb as high as US 85 cents by the end of 2018. Sombre news for commodity exporters, if it comes to bear.
However, there are no signs of demand slowing currently, so they at least have a little more time before any major concerns crop up. Though the dollar could be set for another increase today.
Australia’s June quarter GDP figures release today, with many tipping a favourable result. Economists believe we could be in for growth of 0.9%. Which would put our year-on-year growth at 1.9% — continuing Australia’s 26-year-long run without a technical recession.
It’s a flurry of cautious optimism that has seemingly caught some off-guard. But it could still be just a short reprieve.
The wider world is particularly tumultuous at the moment. North Korea, the South China Sea, Burmese genocide, and ongoing conflict in the Middle East are just some of the crises we face today. Even Mother Nature is doing her damnedest to cause havoc it seems, as America is still reeling from Hurricane Harvey…and with Irma on the way.
The RBA and Philip Lowe might be optimistic, but it wouldn’t take much to crush that optimism in a heartbeat. We’ll take most of today’s news with a grain of salt. You can’t just sit on a powder keg of household debt and stagnant wages and keep smiling.
Or maybe you can at the RBA…
If you’re looking for a more grounded perspective, check out Vern Gowdie’s grim outlook for the Aussie dollar here.
Junior Analyst, Markets & Money