Originally published by AxiTrader
In a decision which was widely anticipated the RBA Board decided to leave the cash rate unchanged at a record low level of 1.50% after its meeting today.
No surprises there.
But the market, traders and investors, were keen to get a guide on how the RBA sees the outlook for the Australian economy which seems to be experiencing some areas of both emerging strength and weakness. That's dividing the economics fraternity with around 25% of the 72 economists polled in they latest Reuters survey expecting a rate cut while 6 think the next move is higher.
Personally I'm in the "it's too close to call". I guess that implies I'm leaning more toward the rate cut camp than the rate hike camp.
Or at least I was until I read RBA governor Phil Lowe's statement accompanying today's decision on rates.
Lowe took this opportunity to reiterate that the RBA maintains its inflation forecasts and still expects growth to accelerate in the upcoming December 2016 data - to be released March 1 - and over the coming years.
"In Australia, the economy is continuing its transition following the end of the mining investment boom. GDP was weaker than expected in the September quarter, largely reflecting temporary factors. A return to reasonable growth is expected in the December quarter...The Bank's central scenario remains for economic growth to be around 3 per cent over the next couple of years" governor Lowe said in his statement.
That's pretty upbeat and answer one of the two primary questions I had of this governors statement. That is, would the RBA retain its late 2016 ebullience.
The answer is clearly yes on my read of this statement.
That's particularly the case given governor Lowe highlighted the recent weaker than expected inflation report for Q4 2016 was actually in line with the bank's forecasts - even if it was lower than the market forecast.
"Inflation remains quite low. The December quarter outcome was as expected, with both headline and underlying inflation of around 1½ per cent. The Bank's inflation forecasts are largely unchanged" Lowe said in his statement.
The other big question I had for the RBA was their approach to an Australian dollar which is back near the highs of the past year just below 77 cents.
Governor Lowe again said "The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment".
My take on that is the RBA doesn't really want an Aussie dollar much higher but given it is sitting around it's post float long run average, and given it was trading in the low 90 cent region just a few years back it is still providing some stimulus.
Ont part of the governors statement which was very interesting was the large paragraph on Australia's housing market. My guess is we'll get more detail in Friday's statement on monetary policy on this topic.
Governor Lowe highlighted the divergent conditions in various housing markets around the country at present. I assume that's his way on conveying something along the lines of 'there is more to Australia than just Sydney and Melbourne'.
"In some markets, conditions have strengthened further and prices are rising briskly. In other markets, prices are declining" Lowe said.
But he also highlighted that the looming wave of massive supply is coming in the "eastern capital cities". That's clearly a message to investors - particularly given he said 'growth in rents is the slowest for a couple of decades".
But he's also a little concerned about the potential impact from this supply tsunami on prices and whether that flows into single dwelling housing in the eastern states and then throughout the economy.
The Australian dollar responded positively to the decision and its apparent mild hawkishness. It's up 25 points from the 0.7640 level just before the decision was announced.
Short term it's trapped between 0.7620 and 0.7700/20. A break of either level might get things moving. Medium term I retain a bullish bias and can see a challenge of last years highs around 0.7840 and perhaps into the 80's at some point this year.
Here's the chart.
Have a great day's trading