Once again all the rate cut forecasts from business economists, the media and business for 2014 have been proven incorrect after the Reserve Bank failed to cut rates yet again at its last meeting for 2014.
Yesterday’s decision to leave the cash rate unchanged means the current 2.50% level will remain steady until at least the first RBA board meeting for 2015 on February 2.
The central bank stuck to its guns and ignored a long line of forecasts from business economists, media and others that it would be forced to cut rates sometime in 2014.
Nothing changed in 2014, except the working of the post meeting statements from the Governor, and even those changes became few and far between in recent months.
And judging by the few changes to Governor Glenn Stevens’ post meeting statement yesterday from November’s statement, the central bank won’t be in a hurry to change anything in early 2015.
But traders in the Australian dollar got it right and sent the dollar higher – back past the 85 USc mark to around 85.20 USc last night in Sydney.
But the currency retreated in offshore trading and was around 84.45 this morning in Asia.
If anything the RBA decision added to the strength in the rebounding stockmarket yesterday, which rose further in late trading.
But the futures market have the local market opening weaker this morning, despite reasonable gains on Wall Street.
Oil and gold both fell, ending Monday’s rallies.
The rise here yesterday of 73 points wasn’t enough to offset Monday’s headless chicken type of sell off, or last Friday’s panic, but it did illustrate that there were some clearer heads among big and small investors than on the two previous trading days as they hunted for bargains.
Market sentiment was helped by the fact that the RBA Governor’s statement contained nothing surprising, while data out yesterday suggested that the third quarter GDP figures out later today will be a bit better than previously expected.
In fact more and more investors are starting to see some silver linings in 2015 from the lower oil price, if it’s sustained, especially among stocks in the consumer durables and staples area.
As usual Mr Stevens’ statement ended with the now familiar phrases indicating the bank was content to sit and watch the economy.
"Looking ahead, continued accommodative monetary policy should provide support to demand and help growth to strengthen over time. Inflation is expected to be consistent with the 2–3 per cent target over the next two years,” Mr Stevens said
"In the Board’s judgement, monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target. On present indications, the most prudent course is likely to be a period of stability in interest rates,” he concluded.
There was the usual comments about the value of the dollar not being lower than it currently is – but they were qualified compared to previous months.
"The exchange rate has traded at lower levels recently, in large part reflecting the strengthening US dollar. But the Australian dollar remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices in recent months. A lower exchange rate is likely to be needed to achieve balanced growth in the economy.”
Previously that paragraph had said in part ”But the Australian dollar remains above most estimates of its fundamental value, particularly given the further declines in key commodity prices in recent months. It is offering less assistance than would normally be expected in achieving balanced growth in the economy".
Perhaps the RBA has concluded the dollar may not fall very much lower than its current level of between 84 and 85 USc. But on a Trade Weighted Index, the dollar (it measures its value across a basket of currencies of our major trading partners) is all but unchanged from where it started in 2014 – 68.3 yesterday against 68.6 on January 2.
The Aussie dollar against the greenback is down from just over 89 USc to just over 85 USc, a fall of just under 5%. From the start of 2013 the dollar’s fall is larger, as you’d expect, from $US1.0468, to just over 85 USc – a drop of more than 17%; while the TWI was on 77.7, a fall of 11.5%.
