The Australian dollar climbed against the US dollar on Tuesday after the Reserve Bank of Australia (RBA) kept its cash-rate target at 2.5%, indicating stronger economic growth. Investors digested the statement released by the bank, which showed that the Australia’s central bank signaled the end to its easing cycle and approving the exchange rate decline.
The Reserve Bank of Australia is changing stance as home prices climbs and inflation accelerates.
“The exchange rate has declined further, which, if sustained, will assist in achieving balanced growth in the economy,” Governor Glenn Stevens said in a policy statement released on Tuesday, “the most prudent course is likely to be a period of stability in interest rates,” he added.
The aussie was trading 1.65% higher at $0.8898 at the time of trading, after dropping to a low $0.8729 before the RBA decision on Tuesday.
The country’s central bank maintained its benchmark rate at 2.5%, meeting in line with analysts’ forecasts after inflation for the final quarter of 2013 came in higher than expected at 2.7%, compared to the previous reading of 2.3%.
“Inflation in the December quarter was higher than expected,” Stevens said on Tuesday. “This may be explained in part by faster-than-anticipated pass-through of the lower exchange rate, though domestic prices also continued to rise at a solid pace, despite slower growth in labor costs. If domestic costs remain contained, some moderation in the growth of prices for non-traded goods could be expected over time.”
Australian Dollar – Forecasted Lowered
The implied yield on June interbank futures climbed to its highest since November, rising to 2 basis points to 2.46%, as market analysts lower their forecast on further RBA reduction.
The Reserve Bank of Australia is trying to stimulate housing construction to pick up some of the strain in the labour sector.
Demand Rises
Adding to the signs of the economy’s growth stabilizing is the recent data released which supported lowering the exchange rate on business sentiment with the National Australia Bank (NAB) Business Conditions Index climbing by 7 points in December from -3 to 4 in the previous reading; the highest in two and a half years.
Domestic demand indicators came in higher than expected, as well as retail sales which climbed 0.7% higher in November, compared to a consensus forecast of a rise of 0.4%. Building approvals in December came in below analysts’ forecast, showing a 21.8% year-on-year growth.
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