Australian dollar under presssure as rate cuts loom

Financial and commodity markets analytics

The Australian dollar is on the backfoot in today’s trading session after a dovish speech from the reserve bank of Australia confirmed analysts’ predictions that more rate cuts are on the way as the year unfolds

The RBA noted yesterday that an extended period of low interest rates would be required to boost employment and help head towards their inflation target, which has now been below there preferred level for several years.

An overall Global economic downturn is also a worry for the central bank which has them concerned on the effects this will have on the Australian economy.

"The minutes had a generally dovish message. The RBA appear more concerned about the global back drop, noting slowing global trade, investment and growth," says Kim Mundy, a strategist at Commonwealth Bank of Australia. "

“The RBA continues to watch labour developments closely. It’s likely to take a long time to get the unemployment down to 4½% where the RBA would like to see it. CBA Economics expects the RBA to cut interest rates by 25bps in November and February." She added.

The recent attack on the oil fields in Saudi Arabia is also expected to cause problems for the Australian economy by pushing up the price of petrol which will put pressure on Australian consumers and give more reason to the RBA to slash rates

"A significant spike in Australian petrol prices would pose a further threat to consumer spending and growth in Australia, adding to pressure on the RBA to ease further," says Dr Shane Oliver, chief economist at AMP Capital.

"Prior to the attacks in Saudi Arabia, Australian capital city petrol prices were around $1.40 a litre. The rise in oil prices since then implies a rise to around $1.46." he added.


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