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AUSTRALIAN INTEREST RATE HOLDS

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AUSTRALIAN INTEREST RATE HOLDS

Dec 2 2014, 10.35am GMT

STOCK.com

The Australian dollar, which had been losing against the US dollar since the start of September this year, made an intraday high but retraced.

As Australia's central bank kept interest rates at record lows for a 16th straight month, unchanged at 2.5%, AUDUSD jumped on the news of better than expected building approvals but retraced due to the dovish nature of the RBA announcement.

Admitting slow growth, Glenn Stevens, Governor: Monetary Policy Decision, Reserve Bank of Australia said, “In Australia, most data are consistent with moderate growth in the economy. Resources sector investment spending is starting to decline significantly, while some other areas of private demand are seeing expansion, at varying rates. Public spending is scheduled to be subdued. Overall, the Bank still expects growth to be a little below trend for the next several quarters.”

In terms of exchange rates on currencies, the AUD has traded at lower levels recently. As the RBA says, “reflecting the strengthening US dollar. But the Australian dollar remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices in recent months. A lower exchange rate is likely to be needed to achieve balanced growth in the economy.”

With consistent interest rates, the economy hopes to be held stable, with the RBA saying, “Looking ahead, continued accommodative monetary policy should provide support to demand and help growth to strengthen over time. Inflation is expected to be consistent with the 2–3 per cent target over the next two years.”

The interest rate has rested at 2.5 percent since August last year, whilst the country tries to endure the decline of mining investment, its largest production market, and the fallout from a potential housing bubble. The commodity market decrease has affected national income and taxes, export earnings, wages and profits. However, GDP is hoping to announce a rise in Wednesday’s report based on low mortgage rates reviving the housing market and private demand. New home approvals rose 11.4 percent in October, reversing September’s fall.

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