The Australian Dollar flew to a two year high against the USD following the July’s RBA minutes. Although interest rates were left untouched at 1.5% the general rhetoric combined with more US policy uncertainty saw AUD/USD Exchange Rates to a Two-Year High.
Amongst many points of optimism was the RBA’s general view of the economy, the shrinking of the Australian deficit and a positive wage and labour market outlook; Plus, what appears at least in many parts to be an overall global recovery, where many nations are now pondering or have implemented interest rate hikes.
Overview of the Australian Economy
Although the growth figures released in March had seen Australia’s GDP slow the RBA calculates that this is down to temporary factors which include extra capacity in the Jobs market and weak inflation. Australian CPI figures currently sit at a year on year 2.1%, with the next reading being released on Wednesday next week. An increase to the tune of 0.4% is expected on the headline CPI figure.
Whilst the housing market varies, key markets including Melbourne and Sydney remain under high demand due to population increases.
Positive Wage Growth and Job Prospects Outlook
The RBA also would appear to feel a lot more positive with the Australian jobs markets following the release of the latest unemployment rate which saw Australian unemployment fall to a four year low of 5.5%. Although the lack of rate rise was blamed on the jobs and wage growth it appears that the RBA have more confidence in these elements of the economy.
Regarding wage growth the RBA announced that labour cost increases had remained static. However, the Fair Work Commission had announced an increase of 3.3% in the national minimum wage.
Shrinking of Australia’s Deficit
Although it remains high representing around 6% of Australia’s GDP the nations deficit has shrank from its high in mid-2000’s when it touched 7%. The latest report from the Commerce Department has illustrated a fall of 2.3% with Good exports increasing dramatically in May.
AUD/USD Exchange Rates to a Two-Year High.
Following the RBA minutes, the AUD/USD Exchange Rate shifted from 0.7788 to 0.788 in just a few hours. The pair continued to gain with the AUD/USD Exchange Rate hitting a high of 0.7961 on Thursday evening. The Australian dollar has taken its foot off the gas slightly but this may due to profit taking.
Elsewhere the Aussie dollar enjoyed gains against the Pound and Euro following the RBA minutes however many of the gains seen have now been corrected.