There were no surprises when Australia’s Central Bank Governor Glenn Stevens and his board left its key interest rate unchanged Tuesday at a record low of 2.0. Despite the decision, the Australian dollar continued to rise.
According to Matthew Circosta, an analyst at Moody's Analytics, "There are a lot of factors influencing the currency. One of those is probably tomorrow, the GDP (gross domestic product) number for the first quarter. It's probably going to be very strong.” But moving forward, “you'll see that Aussie dollar weakness coming through in the next few months, because the U.S. is going to be raising interest rates," Circosta continued.
Aussie up 0.4%
Most economists expected the Reserve Bank of Australia (RBA) to stay steady, while others predict that if non-mining business investments continue to be restrained, interest rates could be reduced to 1.75 percent or lower by December. They believe that the nation’s economic growth probably cooled to 2.1 percent in the first quarter from a year earlier, the slowest pace since 2013.
“With very slow growth in labor costs, inflation is forecast to remain consistent with the target over the next one to two years,” Central Bank Governor Stevens said.
The Australian dollar was up half a U.S. cent or 0.4 percent to trade at $0.7654, from $0.7628 prior to the release of the report. The benchmark S&P ASX 200 index widened its losses slightly to fall 1.3 percent, touching an eight-day low. Traders are pricing in 20 basis points of easing in the next 12 months, or less than a quarter-point cut.