Australian Dollar Falls as RBA Minutes See Lower Rates for Longer
- AUD/USD fell after minutes from the last RBA meeting highlighted weaker than expected growth
- Officials saw an appreciating currency as complicating economic adjustment away from mining
- Australia saw a strong trade surplus driven by resource exports in the December 2016 quarter
The Australian Dollar weakened a quarter of a percent against the US Dollar following the release of minutes from February’s RBA monetary policy meeting, at which the central bank held rates at 1.50 percent.
The meeting took into consideration recent economic developments, such as a “considerably weaker” than expected 0.5 percent decline in GDP in the third quarter. This disappointment was attributed to bad weather, coal supply disruptions and slower than expected growth in consumption.
Household consumption had been subdued according to the minutes, in line with tepid income growth. However, economic developments have not been entirely poor as retail sales volumes increased in the December quarter.
The fourth quarter of 2016 also saw Australia report a significant trade surplus driven by resource exports. The RBA expected the drag on growth from falling mining investment to diminish.
The RBA noted that the depreciation of the exchange rate has assisted the economy in its transition “following the mining investment boom”. Policymakers stated that an appreciating exchange rate would complicate this shift.
Inflation growth met expectations for the December quarter and forecasts were little changed. Medium-term inflation expectations remained “well anchored” as the committee anticipates a gradual rise in prices. Taking into account domestic growth trends the RBA felt it would be appropriate to hold rates lower for longer to further support growth.
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