RBA Says Stronger U.S. Growth, Lower Aussie Could Boost Economy

(Bloomberg) -- Australia’s central bank sketched out a scenario where faster global growth and U.S. stimulus withdrawal push the Aussie dollar lower and underpin a stronger outlook Down Under.

Main Takeaways

  • In minutes of their Aug. 7 meeting released in Sydney Tuesday, policy makers also noted that while the direct impact of trade protectionism was likely to be small, the risk to investment and confidence had increased
  • RBA noted that higher household income, combined with a minimum wage increase, tax cuts in the offing and a tightening labor market reduced some of the uncertainty around consumption
  • Reiterated there was no strong case for a near-term policy adjustment and that while progress in reducing unemployment and lifting inflation was likely to be “gradual,” the next move was more likely to be up rather than down
  • Australian dollar was little changed at 73.47 U.S. cents at 11:39 a.m. in Sydney

State of Play

The Reserve Bank of Australia has played an anchor role in the economy for the past two years, standing pat at a record-low 1.5 percent cash rate. It has sought to be a source of stability and confidence that boosts hiring and eventually encourages wage growth. While the labor market has tightened during the period, the transition has proven more protracted than expected and traders see little chance of a rate hike in the next 12 months.

RBA Says Stronger U.S. Growth, Lower Aussie Could Boost Economy

Key Quotes

  • It’s possible that U.S. growth and inflation could be stronger than expected and prompt a faster withdrawal of stimulus than markets anticipate, leading to a “broad- based appreciation of the U.S. dollar. This scenario implied stronger global growth than forecast and could be associated with a depreciation of the Australian dollar, both of which would support the Australian economy”
  • “Public demand was expected to make a significant contribution to growth over the period to the end of 2020”
  • “There was some risk that the recent decline in wholesale electricity prices could have more persistent effects on utilities prices than had been factored into the forecasts. At the same time, members noted that these price declines would boost real household disposable income”
  • “The direction of international trade policy in the United States continued to be a source of uncertainty for the global outlook”

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