Aussie Declines After Dovish RBA Minutes

The Australian dollar declined
today after the Reserve Bank of Australia (RBA) released the monetary policy
minutes for the past meeting. The minutes showed that the bank was increasingly
concerned about the slowing global economy, the low rate of inflation, and the
challenging real estate market.

On the global economy, the growth
in the main Australian trading countries had continued being above trend. They
however pointed out that this growth started to slow in the second half of the
year. This slowdown was blamed on the slowdown in China amid a trade conflict
between the country and the United States. The two countries are now
negotiating a deal that will likely iron out the key issues between the two
countries. In Europe, the minutes showed that officials were concerned about
tariffs coming from the United States. These tariffs may affect the economies
of European countries, which depend mostly on imports.

On the Australian economy, the
officials said that the economy had underperformed in 2018. The real GDP of
0.3% in the quarter and the 2.8% in the year was below the expectations. The
economy had seen a number of downward revisions. In 2019, the economy is
expected to grow by about 3%, which may be supported by an accommodative
monetary spending and the ongoing public spending and business investments.
This growth may decline to 2.75% in 2020 mostly because of the Liquefied
Natural Gas output, which may reach the target this year.

The officials were concerned with
the real estate industry, which is experiencing a drop. This comes after a
massive growth in the industry especially in the major cities of Sydney and
Australia. The falling prices has seen the values of most homes decrease
significantly, which has affected the net-worth of the buyers. Real estate
companies have also been left with increased inventories.

Another challenge highlighted in
the minutes was in the agricultural industry. In the third quarter, farm output
declined by 8%. This subtracted about 0.25% from the year-end GDP. The country
is currently going through a drought that may see production levels slow down.

On the labor market, the
officials noted that it is tightening. The unemployment rate is currently at
5%, which is the lowest level since 2011. This figure was much lower than what
was expected. The labor market was specifically stronger in New South Wales and
Victoria, where the rates have fallen to between 4% and 4.5%.  Over the next few years, the unemployment rate
is expected to decline to between 4% and 4.5%.

On inflation, the numbers have
continued to be lower. This has been caused mostly by the increased competition
in the retail sector, which has led to more discounts. The low oil prices have
also contributed to the low rate of inflation. Also, the falling house prices
has led to a slowdown in rental prices. In conclusion, the officials said that:

Given that further progress in reducing unemployment and lifting
inflation was a reasonable expectation, members agreed that there was not a
strong case for a near-term adjustment in monetary policy. Rather, they
assessed that it would be appropriate to hold the cash rate steady and for the
Bank to be a source of stability and confidence while further progress unfolds.
Members judged that holding the stance of monetary policy unchanged at this
meeting would be consistent with sustainable growth in the economy and
achieving the inflation target over time.

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