Australian dollar strengthens
Yesterday, the local currency eased back after the country’s central bank sounded a warning about weakness in the housing market that was taken as dovish for interest rates.
The Aussie dipped to 71.21 US cents and away from Monday’s top of 71.60, which now marks chart resistance.
Minutes of the Reserve Bank of Australia’s February policy meeting showed the board saw “significant uncertainties” over the economic outlook, particularly on how sliding home prices might affect consumer spending.
This meant there could be scenarios where interest rates might go down as well as up, the minutes showed.
“Moreover, the probabilities around these scenarios were now more evenly balanced than they had been over the preceding year, when an eventual increase in the cash rate had appeared more likely,” the RBA said.
Investors have decided the risk of a rate cut is now greater than a hike, and futures imply around a 70 per cent probability of a quarter-point easing in the 1.5 per cent cash rate by year-end.
“We expect the cash rate to remain unchanged for the foreseeable future – until November 2020 at the earliest,” said CBA senior economist Belinda Allen.
“However we see the risks over 2019 as tilted toward the downside as the housing market continues to adjust lower and impact the consumer.”
Any softness in wages and jobs data due this week will only add to those risks, while RBA Governor Philip Lowe will be grilled on the outlook during parliamentary testimony on Friday.
The minutes showed the RBA board was also worried about the global outlook, citing a slowdown in China and heightened trade tensions.
A new round of talks between the United States and China will begin in Washington on Tuesday, with follow-up sessions at a higher level later in the week.
Australian government bond futures inched up in the wake of the minutes, with the three-year bond contract rising half a tick to 98.320.
The 10-year contract also added half a tick to 97.8700.
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