Australian Dollar Slides as On-Hold RBA Warns Against Strength

And although many Australians are “coping reasonably well with the higher debt levels” a lot of Australians are doing it increasingly tough in hard economic circumstances. The Australian economy is doing well in certain areas, such as manufacturing, while business conditions generally are favourable. But consumers are more cautious.

Asian markets slipped on Tuesday in a session of distinctly muted risk appetite, which followed a weaker Wall Street close on some softer United States economic numbers.

Housing has dominated the commentary.

The RBA held rates for the 12th consecutive month on Tuesday, preferring to leave the task of cooling the Sydney and Melbourne to ASIC and APRA so it needn’t dampen the rest of the economy with a rate rise.

“We think that shift has further to go and that it will prompt the RBA to cut interest rates to 1.0% by the end of the year”.

Banks must also ensure that growth in housing investment mortgages remains “comfortably” below the 10 per cent limit introduced in December, 2014, under the new, stricter regulations.

The problem for the RBA is that it has encouraged a huge increase in household debt, thanks to its low interest rate policy. But in our view, policy is unlikely to change over 2017, so any rate hike is some way off.

“The economy is not strong enough to raise underlying inflation to the 2-3 percent target or to significantly lower the unemployment rate”. And economic growth is expected to lift over the year.

Probably the most important (politically anyway) comment was the way he added weight to growing calls from sections of the property market, company directors, economists and company leaders for action – such as reassessing the capital gains tax discount of 50%.

Then there is the global environment.

Elsewhere, the Aussie was near four-month lows on the yen, dragged down by increased demand for safer assets as global risk appetites dwindle.

And there are early signs that the Euro zone will reduce stimulus later this year.

The Australian share market will open lower, following weak leads from overseas – and ahead of the Reserve Bank’s interest rate decision this afternoon.

Just five weeks before the federal budget, Australia’s leading independent economic voice has inserted himself once again into the political fight over housing affordability and concerns of a unsafe property bubble.

Economists expect a better reading on the bank’s intentions moving forward once it considers first quarter inflation data due later this month, potentially making the board’s May meeting more interesting.