Aussie dollar gets kicked by RBA outlook


The Australian dollar came under selling pressure yesterday after the Reserve Bank of Australia (RBA) delivered a slightly dovish take on the economy.

“The Aussie dollar had its leg kicked out by the RBA concerns on the economy and housing,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.

According to McKenna, the RBA’s latest decision suggested that were it not for the rampant borrowing by investors and the house price appreciation, the RBA would be preparing the ground for an easing of monetary policy

“The washout was that the Aussie dollar broke down through 76 cents, the uptrend line for 2017, and only found support once it moved to the 200-day moving average,” McKenna said.

From his perspective, McKenna said the RBA is clearly concerned about the economy because of the following factors:

1. Softness in the labour market

2. Low inflation

3. Only moderate levels of economic growth

4. The growth in debt and the impact on housing

“I believe they (RBA board) are worried about these things and the fact that the growth in debt is outpacing growth in income as personal leverage rises,” McKenna said.

He added that this month’s message was more explicit and showed the real concerns RBA governor Lowe and the RBA hold about where the consumer side of the economy are at right now.

“Governor Lowe doubled down on his fight against rampant borrowing and banks’ lending to folks with a wafer-thin margin of repayment in his speech overnight at an RBA dinner,”

READ  Virgin markets of Russia likely to pave the way for the growth of the global Liquid Biopsy market

“And for me, the key takeaway was one sentence in a brilliant but brutal speech for Australian lenders and borrowers,” McKenna said.

In his speech, Governor Lowe said: “For many people, the high debt levels and low wage growth are a sobering combination.”

“As a behavioural economics person, I think that’s important. Australian consumers have been anchoring on their wealth for the past few years – happy to spend and run down their savings rate to a post-GFC low in the December quarter of 2016,” McKenna said.

He added that given the RBA’s and the Australian Prudential Regulation Authority’s (APRA) warnings on debt levels, consumers should switch focus.

“That’s especially the case given APRA is signalling a clamp down on lending and in the same breath effectively warning that house prices are going to at best slow their rise and possible turn lower,”

“And that makes that lone sentence in governor Lowe’s speech last night all the more important,” McKenna added.

In the meantime, the Aussie dollar continues to be under pressure at the moment.


About AxiTrader

Back in 2007, AxiTrader was founded on a simple idea: to be the broker we’d want to trade with. We’ve since grown to become one of Australia’s largest and leading Forex brokers.  Investing in over-the-counter derivatives carries significant risks and is not suitable for all investors. You could lose substantially more than your initial investment.


This post has been seen 618 times.