The RBA has met again this month and unsurprisingly has left the official cash rate at 1.5% p.a.
Recent data from the US have shown payroll numbers surprising to the upside. Combined with Trump’s corporate tax cuts, the expectation of higher inflation has resulted in increased yields on US bonds and a sell-off in equity markets in recent days. As a result, the Australian Dollar (AUD) has lost some ground against the USD over recent days to be sitting under $0.80 USD.
However, even at the high $0.70 range, the AUD remains higher than the RBA would like to see before being in a position to lift official interest rates without negatively impacting the financial stability of Australia. Combined with recent Aussie inflation data showing inflation at 1.80% p.a. (still below the target band of 2.00-3.00%) – and high levels of household indebtedness – we expect to see the RBA continue sitting on its hands for most, if not all, of 2018.