Australian dollar's days may be numbered

Financial and commodity markets analytics

The Australian dollar has held up remarkably well over the last few trading sessions considering the range of local data released to the market since the start of the week and now the question on everybody’s mind is how long can this last?

The troubles began on Monday with the release of the TD securities inflation report which hit the market at 0.1 percent which confirms that consumers are still wary and may be attributed to underperforming wage growth.

On Tuesday, we saw the latest retail sales figures which came in at 0.1 percent against analysts’ expectations for a figure of 0.4 percent which is obviously also connected to the issue mentioned above.

Evan RBA governor Philip Lowe confirm this in a speech yesterday after the latest interest rate decision by noting that inflation was indeed still a headache for the central bank and wage growth remains a key issue in order for the figures to improve.

“The rate of wage growth appears to have troughed, Inflation is likely to remain low for some time, reflecting low growth in labor costs and strong competition in retailing.” Mr Lowe said

To top off the bad news was the release of GDP figures earlier today, which came in at 0.4 percent and well down from last month’s figure of 0.7 percent which leaves the RBA no option to keep rates on hold until at least 2019 and some are now starting to speculate that the chances of a rate cut are not out of the question.

“Wage growth remains key, as this will ultimately drive inflation, and it remains anemic; real wages have stagnated over the last year,” We don’t see the cash rate rising until 2019, likely the second half of the year.” Noted said Sarah Hunter, head of macroeconomics for Australia at BIS Oxford Economics.

If we looked at all the major economies around the world, it appears as though Australia is the only country not contemplating raising rates over the next year or two and when the market finally digests this news the Aussie dollar could be in for some serious losses.


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