The RBA just warned the Australian dollar is too high

The RBA just warned the Australian dollar is too high

Core inflation low, so is wage growth.

Volatility was lower than last week, with approximately 22% of the major and minor currency pairs changing in value by more than 1%.

What the RBA wants is for the Fed to keep going with its rate raising program but financial markets are betting that won't happen.

"When a central bank tells you that an appreciating exchange rate could be expected to result in a slower pick-up in economic activity or inflation, then you begin to think, 'What are their forecasts?'" The Australian economy is continuing its transition following the end of the mining investment boom. The transition to lower levels of mining investment following the mining investment boom is nearly complete, with some large LNG projects now close to completion. Some pick-up in non-mining business investment is expected.

"One source of uncertainty for the domestic economy is the outlook for consumption", Lowe said.

Based on the RBA statement, we have to agree with Dr. Lowe, the current low cash rate is likely to remain for some time.

Still, wages growth is stuck at a record low 1.9 percent - less than half the rate workers enjoyed a decade ago.

PMI's are now broadly range bound around the 53-4 level for all three sectors and they are expected to remain around those levels.

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The Australian dollar took a brief knock on Tuesday after the country's central bank cautioned that its strength could harm the economy, though the impact was quickly offset by gains in commodity prices and weakness in the United States dollar. That, together with new entrants in the retail industry - read Inc. - are likely to keep inflation subdued, notwithstanding sharp electricity price increases.

The Australian dollar climbed from $0.76 to above $0.80 over the last month, partly due to the weakness in the greenback.

In response, the RBA inserted a new paragraph in its August policy statement, saying, "an appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than now forecast".

That combined with stronger commodity prices to drive the resources sector higher, he said.

Data out on Tuesday showed home prices surged in July as double-digit annual growth in Melbourne and Sydney belied efforts by regulators to tame the market. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years.

"Growth in housing debt has been outpacing the slow growth in household incomes", Dr Lowe warned. Expects supervisory measures to help to address the issue.

However, other economic indicators appear to reflect a buoyant economy that could see the RBA lift the official cash rate in the months ahead.

There have been minor tweaks in this month's statement; it basically remains same in tone and neutral in terms of future bias. The Australian dollar is now trading at 0.801 against the dollar.

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