Image source: Piotr Swat © 123RF.com
At a meeting on Tuesday, the Board of Directors of the Reserve Bank of Australia decided to maintain the key interest rate in the country unchanged at the current level of 0.75 per cent.
All consensus forecasts converged on more or less the same expectations prior to the monetary policy meeting, as no other decision of the Board would have reflected on the key economic factors and political developments that are prevailing currently.
In the monetary statement that was released after the decision, the Board acknowledged that:
“Interest rates are very low around the world, and a number of central banks have eased monetary policy in response to the persistent downside risks and subdued inflation. Expectations of further monetary easing have generally been scaled back over the past month, and financial market sentiment has improved a little. Even so, long-term government bond yields are around record lows in many countries, including Australia.”
It was also acknowledged that inflationary pressures are developing in accordance with the RBA’s mid-term expectations and that the labour market is growing at a steady pace.
However, subdued wage growth is weighing on consumer confidence, and as a result, consumer spending is currently below the desired level.
“The central scenario is for the Australian economy to grow by around 2¼ per cent this year and then for growth gradually to pick up to around 3 per cent in 2021. […] The main domestic uncertainty continues to be the outlook for consumption, with a sustained period of only modest increases in household disposable income continuing to weigh on consumer spending.”
The low-interest-rate in the country is expected to work in conjunction with increased government spending on infrastructure to boost the growth rate in the mid-term.
Headway economic growth is currently at 1.4 per cent, which is the weakest recorded performance in Australia since the credit crunch of 2008.
Australia GDP Annual Growth Rate. Image source: TradingEconomics.com
The RBA projects the annual rate of expansion of the Australian economy to rise to 3.0 per cent by 2021 after the observed soft patch from this year.
Therefore, the low-interest rates are likely to be maintained at least until mid-2020 as the GDP growth rate starts to pick up steam once again.
Meanwhile, the price of the AUDUSD is currently consolidating just above the minor support level at 0.68800, per our forecast from Monday.
Once the correction around this critical price level is terminated, the price would be ready to start appreciating once again.
The bullish trend is expected to test the 61.8 per cent Fibonacci retracement level at 0.69362.
AUDUSD 1D Chart. Image source: Trendsharks ©, created with TradingView.com
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