FX CURRENCY WATCH
growth to reaccelerate gradually, rising back within the next two years to just above 3%, in line with the forecasts published in the May Statement on Monetary Policy, in which it had left
the growth
forecast for this year unchanged at 2–3% (from 2.5% in 2016), while revising up its forecast for next year, from 2½–3½% to 2¾–3¾%.
The RBA’s assessment of the
economic picture remains positive. The recovery at the global level
continues, and sector at home the
transition process following the mining
boom is almost
complete, with improved business conditions and a recovery in investments. Against this background – which is favourable as a whole – some shadows linger, however. Labour market indicators, for instance, are mixed: while the employment trend is strengthening, wage growth remains subdued, and will do so for a while longer, holding back private consumer spending.
On the other hand,
recovery
the in
Fig. A – AUD retreating in line with commodities… Fig. B – …and yield spreads
inflation will be slow. In its May SMP, the RBA left u n ch a n g e d its inflation forecasts for both this year and the next at 1½–2½%, i.e. still just below the 2-3% target, that the central banks expects to be reached only in 2019. Inflation forecasts have been at these same levels since August, indicating that
50 FX TRADER MAGAZINE July - September 2017
the RBA, while acknowledging that the overall picture has significantly improved compared to last year, believes that lingering uncertainties at the international level still prevent the recent domestic improvements from being considered as definitively acquired. In terms of policy action, this means that the RBA intends to maintain a neutral bias, also in order
to prevent an unwelcome
appreciation of the exchange rate. As the central bank itself reasserted on occasion of its latest meeting, the economic recovery has been supported by both low interest rates and by the depreciation of the Australian dollar since 2013.
Among other uncertainties, a major factor of concern for the Australian central bank is still the potential slowdown of economic growth in China, where support lent by spending on infrastructure and by the real estate market is offset by mounting debt, which will continue to represent a risk in the medium term. The RBA also noted that, for what concerns commodities, prices have resumed rising in the past year, whereas iron ore and coal prices have recently dropped somewhat.
In light of the risk factors and of the uncertainties that are still clouding the picture of the domestic economy, we confirm our
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