Is pressure building for Australia’s central bank to cut its interest rate, from its current level of 1.5%?

Sep 4 • Extras • 1824 Views • Comments Off on Is pressure building for Australia’s central bank to cut its interest rate, from its current level of 1.5%?

On Tuesday morning at 04:30am (GMT) September 5th, a highly significant, economic calendar event takes place; Australia’s central bank the RBA (Reserve Bank of Australia), will be revealing its decision regarding its main interest rate, which is currently 1.5%. Several Australian based economists and analysts are calling for the rate to be lowered, suggesting various Australian industries are suffering as a consequence of an interest rate that’s far higher and “out of step”, with many of the country’s global trading partners.

The Australian dollar, has increased versus many of its most traded peer currencies during recent months, Australian economists, through many mainstream media outlets, contend that the current strong Aussie dollar is also hurting domestic service industries, such as; tourism and manufacturing, by reducing the country’s capacity to compete versus overseas competitors. Recent house building and construction activity has also fallen; new home sales fell to a four year low in July.

However, the alternative view is that house prices need to moderate, inflation is under control and in the area the RBA’s panel has been aiming for; falling from 2.1% to 1.9% according to the most recent figure, whilst wages are rising moderately. Australia’s largest trading partner; China, is demonstrating no signs of economic slowdown and is still importing vast amounts of raw material from Australia, despite the Aussie currency apparently being strong. Moreover, GDP growth has recovered and is expected to reveal an annual (YoY) rise to 1.8% on Wednesday, from the current level of 1.7%, after a contraction of -0.5% was experienced in Q3 2016. Markit’s PMIs have also revealed significant growth in Australia’s manufacturing and service sectors in their August readings.

Traders with positions in Aussie pairs, or who are looking to trade this development, should be aware that sharp movements have taken place over recent months, as the rate policy decision is revealed. Despite the expectation that the rate will be held at 1.5%, the potential for sudden spikes, in either direction, dependent on the announcement, remains high.

Key relevant Australian economic data

• Interest rate 1.5%
• GDP YoY 1.7%
• Inflation 1.9%
• Government debt v GDP 41.1%
• Unemployment 5.6%
• Wage growth 1.9% YoY
• Manufacturing PMI 59.8
• Services PMI 56.4
• Retail sales 3.3% YoY
• Personal savings 4.7%

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