RBA pleased with Australian transition to stronger growth and employment

Fundamental Analysis

AUD

“Today's RBA statement reveals a central bank pleased with both the improving global backdrop and the transition of the Australian economy to better growth and stronger employment”.

- Scott Haslem, UBS

As markets expected, the Reserve Bank of Australia kept its key interest rate unchanged during its March policy meeting on Tuesday, pointing to rising real estate prices and soft inflation. Policymakers voted to leave the cash rate at 1.5%, despite solid growth and strong performance in the last quarter of 2016. Last year, housing demand hit its all-time high across the country despite high prices. Therefore, the decision to leave the rate on hold was driven for the most part by the RBA not wanting to inflame further the housing market. After the release, the Australian Dollar rose slightly against its US counterpart to trade at $76.17. Back in the Q4 of 2016, the Australian economy expanded 1.1% on a quarterly basis and 2.4% on an annual basis, suggesting better economic growth in 2017. However, the Q4 expansion was mainly driven by household spending financed by drawing down savings, while wage growth remained at record lows. The big question is whether the economy can maintain momentum over a longer period of time with the current unemployment rate of 5.7% and inflation mainly boosted by higher oil prices. The RBA Governor Philip Lowe said the Australian economy benefited a lot from China’s strong economic performance, which was supported by higher spending on infrastructure and building construction.

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