Advertisement
Advertisement
The Australian dollar extended its biggest monthly advance in more than a year yesterday. Photo: Bloomberg

Australian dollar gains as policy left unchanged

Interest rates remain at record low after 2 years of cuts, as Australian property prices keep rising

BLOOM

Reserve Bank of Australia governor Glenn Stevens omitted any mention of having scope for further monetary easing for the third policy meeting in a row. Traders are taking that as approval to drive the local currency higher.

The Australian dollar extended its biggest monthly advance in more than a year yesterday after the RBA left rates at a record-low 2.5 per cent, gaining against all but one of 16 major peers.

Stevens reiterated that further declines in a currency that has slumped 9.9 per cent this year would assist growth, while flagging that previous rate cuts are supporting parts of the economy.

"They do want a weaker currency, but they acknowledge that there's little they can do about that at this stage if they don't think they need to cut rates anymore," said David Forrester, a senior vice-president for Group of 10 currency strategy at Macquarie Bank in Singapore.

"The market will now begin to price in that the RBA is done and start to price in rate hikes next year."

The RBA decision came after data showed home prices surged to a record, manufacturing rose for the first time in two years and retail sales beat forecasts. Sentiment among businesses and households is strengthening as the impact of 2.25 percentage points of rate cuts over two years filters through the economy, Stevens said on Tuesday.

The RP Data-Rismark capital city index of home prices jumped 5.5 per cent from a year earlier across Australia's major cities, exceeding by 0.7 per cent the previous record level for the gauge set in October 2010. Sydney and Melbourne led gains in the three months to September 30, climbing 5.2 per cent and 5 per cent respectively to records, based on data that goes back to 1996.

A Performance of Manufacturing Index climbed to 51.7 in September, breaching the 50 level that signals expansion for the first time since June 2011, the Australian Industry Group said. Separate data showed consumer spending climbed 0.4 per cent in August.

Aberdeen Asset Management predicted in August that the central bank had finished cutting rates and said investors were too pessimistic on the Australian economy. The money manager doubts currency gains on their own will compel the RBA to resume lowering borrowing costs.

"House prices are improving, housing finance is on an upward trend, and with consumer confidence being reasonably strong we think the household sector will increase spending," said Justin Tyler, a senior investment manager at Aberdeen. "The currency itself doesn't put direct pressure on the RBA, it's how the real economy reacts to the currency that is important."

This article appeared in the South China Morning Post print edition as: Australian dollar gains as policy left unchanged
Post