Could Slow Growth Lead to a Rate Cut in Australia?

The Australian dollar declined
after the country’s bank released the minutes of the past monetary policy
meeting. In the meeting, the officials left interest rates unchanged and talked
about the global and local economy.

According to the minutes, the
officials started their discussions talking about the global economy. They said
that the growth has been ‘somewhat limited’ because of the US government in US
and the Lunar New Year across Asia. They also attributed the slowdown to the
ongoing challenges on trade. They however noted the ongoing progress as the US
continues to engage with China. This is after the US delayed the additional
tariffs on Chinese goods, which were scheduled to go in place on March 1. China
is important for Australia because it accounts for a third of all its exports.

The officials also discussed
about the broad-based slowdown in the European Union. The bank attributed the
slowdown in economic growth to the weakness in demand especially from China.
Also, it blamed this on the disruption of the automotive sector after the region
started to implement new standards. In Japan, the bank attributed the slowdown
to natural disasters.

On Australia, the bank said that
the labour market continued to improve albeit at a slower rate. The
unemployment rate has dropped to 5% and is expected to continue falling. In
fact, in New South Wales, the rate has fallen to 4%. The GDP growth for 2018
was slightly slower than earlier expected. This year, the bank expects the
economy’s growth to be slower than earlier announced. This slowdown may be mostly
because of the uncertainties on trade, the extended drought, and the falling
housing prices.

The statement said that the bank
will retain interest rates at the current levels. However, some in the
financial markets expect that the next rate decision will be lower. This is
because of the weakening economy. The statement said:

Taking account of the available information on current economic and
financial conditions and how they were expected to evolve, members assessed
that the current stance of monetary policy was supporting jobs growth and a
gradual lift in inflation. However, members noted that significant
uncertainties around the forecasts remained, with scenarios where an increase
in the cash rate would be appropriate at some point and other scenarios where a
decrease in the cash rate would be appropriate. The probabilities around these
scenarios were more evenly balanced than they had been over the preceding year.

This month, the Australian dollar
has risen against the USD. The AUD/USD pair has moved up from a low of 0.7000
and reached a high of 0.7120. This price is along the middle line of the
Bollinger Bands while the Relative Strength Index (RSI) has declined to the
neutral level of 50. There is a likelihood that the pair may continue moving up
to test the important level of 0.7150.

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