Higher dollar will weigh down growth: RBA

Posted August 03, 2017

The monetary policy statement barely affected the currency against the United States dollar seeing that it gained 0.1 percent to AU$0.8008 in earlier trading.

Australia's dollar is now a key stumbling block to the economy emerging as a competitive services-driven exporter, prompting Reserve Bank of Australia (RBA) governor Philip Lowe to warn on the implications of extending its surge.

Higher commodity prices, weak United States dollar, and the lingering belief that RBA might turn hawkish with its policy, are what keeping the Aussie strong.

Dr Oliver said it's unlikely there will be a change in Australian interest rates by the RBA because "the bank's read on the economy is too mixed to do anything".

The Bank of England (BOE) rate meeting is the main release for the Pound in the week ahead.

"The Australian dollar has appreciated recently, partly reflecting a lower USA dollar".

Lowe also hoped that non-mining investment would start to rise and the high level of residential construction would remain stable for some time, but advised that there are still issues going around the retail sector.

"With headline inflation tracking slightly below the 2 to 3 per cent target range, labour markets tightening and the economy continuing to grow, albeit at a pace below trend, the chances of a rate cut appear to have diminished", he said.

In his statement, Dr Lowe said that although retail sales had picked up recently, "slow growth in real wages and high levels of household debt are likely to constrain growth in spending". The RBA said it expected annual gross domestic product of around 3% over the next couple of years.

The Australian share market is expected to start the week higher, bouncing back from Friday's 1.4 per cent plunge on the back of concerns about the United States economy and the direction of U.S. government policy. In some other markets, prices are declining. The weakness remains household debt - at a record 190% of income and among the world's highest - which is still outpacing income growth.

There is also likely to be a short-term pick up in inflation, as measured by the consumer price index, as higher electricity and tobacco prices flow through.

The bank noted that forward-looking indicators point to continued growth in employment over the period ahead.

Nicholas Gruen, CEO of Lateral Economics, was far more succinct when explaining why he believed rates would remain steady. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.