Record Low Drop of Aussie After RBA November Meeting
It is still unknown when will the Reserve Bank of Australia be able to return to sufficient wages which would lift weakened inflation. At the same time, commentaries from the board push the dollar to its lowest level in five months.
During the minutes of the Reserve Bank's Melbourne Cup day, it can be concluded that they are heedful that low unemployment rate could not be directly associated with the globalization and technology and put upward pressure on inflation.
The cash rate positioned at a historic low of 1.5 percent following the November meeting when board member expressed their uncertainty on wage growth. When the unemployment rate drops, the salaries are expected to have an incremental increase. This could have a cooldown effect on the diminishing surge of the mining sector. Although the board members expressed that uncertainty with the possibility of a wage pressure and the size of its effect on the inflationary pressure.
At the same time, tension coming from strong competition and a quicker rate in productivity pickup could hamper the push through of tighter labor market conditions to inflationary pressure.
Following the release of the meeting, the Aussie dollar dropped to 75.33 US cents from 75.58 US cents which have been the lowest level since June.
As mentioned, the board members see the competitive pressures effect on the outlook for inflation is predicted to decrease down to 2.25 percent but this is still within the target range of the central bank until the middle of 2019.
In effect, it seems that the food retailers and other enterprise adjusted their business models to able to cope with cost problems. It is anticipated that the pressure on retail margins and costs will remain for a while.
On the other hand, the board member also took notice that the wages growth weakened even though the supply in the labor market is declining. Hence, there is a chance that the current wage growth would not have a direct effect on the demand for labor and be less receptive to the changes in demands for labor.
The chief economist of Royal Bank of Canada Su-Lin Ong presumed that the wages growth will reach the lowest rate in 2017.
Considering the global trend, it cannot be clearly deduced whether the pace of wage growth could be maintained.
Ong mentioned that the RBA could hold the rates at a steady pace in 2018 and proceed with increasing their prices the year after and end with two percent cash rate. She noted other factors such as weak domestic demand and variability in housing that is still far from reaching its goals amid an excessive labor market would have a minimal effect to raise the cash rate from 1.5 percent in early 2019.