Bill Evans, Research Analyst at Westpac, explains that as expected the RBA Board left the cash rate unchanged at 1.5% and there were few changes to the Governor’s last Statement on August 7.

Key Quotes

“Commentary around the labour market was a little more upbeat while the 3% fall in the AUD was largely attributed to the USD strength. There was no reason for Westpac to change its call that the cash rate would remain on hold through 2020.”

“The Governor confirmed the central growth forecast for GDP growth to average “a bit above 3 per cent” in 2018 and 2019. Positive business conditions were noted but once again, “one continuing source of uncertainty is the outlook for household consumption”.”

“Since the last Board meeting, the Australian dollar had fallen from around USD 74.40 to USD 71.90. Furthermore, the Trade Weighted Index (TWI) had fallen from 63.5 to 61.8 (down 2.6%). This unusually large move prompted extra commentary on the AUD. It is still described as remaining within the two year range, but “it has depreciated against the USD along with most other currencies”. The move against the USD is around 3.3% compared to 2.6% for the TWI. It is a little surprising that the commentary seems to attribute all the weakness in the AUD to USD strength.”

“Conclusion

Since the last Board meeting, Westpac extended its public forecasts to 2020. We expect the RBA to keep the cash rate on hold over the extended period.”