Rates in Australia going up or down?

18 April, 2018

The Australian dollar can’t seem to find a direction in today’s trading session after yesterday’s losses following the latest minutes from the Reserve Bank of Australia where the central bank reiterated that any rate hikes are a long way off.

While the RBA agree that the next move in rates will be up and not down, inflationary pressures and disappointing wage growth are likely to keep their hands tied for some time.

“Low growth in labor costs in combination with strong competition in the retail sector suggested that inflation would remain low for some time,” they noted.

To some this means rates are likely to remain the same well into the future, maybe for a period of up to 2 years or there is even an outside chance that rates will be cut.

“While consensus and the market have pushed back their expectation for RBA rate hikes, we don’t think they have done enough, and we continue to see the RBA on hold until late 2019,” noted analysts from Morgan Stanley.

“With limited prospects for wage and inflation pressures, the RBA will be in no rush to hike rates, and we even see a risk of a cut if softness in the housing market accelerates and broadens.” they added.

Other analysts however disagree, and believe the RBA will eventually have to overlook the underperforming wage figures and concentrate on other areas of the economy such as commodity price.

Also, they believe it is important that Australia doesn’t fall behind other major economic countries such as the US, Canada and Great Britain who are currently in the process of lifting rates.

"Australia is benefiting from the global upswing not only through increased foreign demand, but also through rising commodity prices, which support the Australian terms-of-trade," says Esther Reichelt, an analyst at Commerzbank

 "As we expect market speculation for interest rate hikes to increase during the course of the year, we expect the Australian dollar to appreciate slowly in the upcoming quarters." he added

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