RBA not about to panic on $A

THE Reserve Bank appears prepared to hold its nerve in the face of a rocketing Australian dollar, relying on its lowerfor-longer rates mantra to defuse the red-hot currency.

Delivering a broadly upbeat statement on the health of the economy yesterday, the central bank gave another burst of momentum to the Aussie, sending the currency careering towards US80c.

It punched as high as US79.24c — a level last achieved in May 2015 — after the RBA released minutes of its rate-setting meeting this month that expressed more optimism over the jobs market and prospects for wage growth.

Employers again appeared to be turning to full-timers, the minutes noted, and three months of strong job gains had “removed some of the downside risk in the bank’s forecast of wage growth”.

The RBA was also sanguine on property lending risks and said households appeared to have upped their spend in the June quarter. Abroad, markets had been pricing in a greater likelihood of near-term rate hikes, the central bank said.

“Members regarded the improvement in the world economy over the preceding months as a welcome development,” the minutes said.

“Nevertheless, they as- sessed that current economic conditions in Australia, and the outlook for growth and inflation, meant that developments in the labour and housing markets continued to warrant careful monitoring.”

The Aussie surged more than US1c after the minutes were released at 11.30am.

While a boon for holidaymakers planning to travel abroad, a high Aussie makes life tougher for domestic industry and tourism operators.

Separately, the RBA made a point of estimating that Australia’s neutral cash rate, once its inflation target is taken into account, was 3.5 per cent rather than the current 1.5 per cent level. Analysts said that could be interpreted as an initial step towards “normalising” rates as the economy improved.

“The focus on the RBA’s estimate of 3.5 per cent emphasises just how stimulatory current policy settings are ... the Aussie dollar has reacted quite aggressively to the minutes,” ANZ chief Australia economist David Plank said.

Other economists said the RBA faced a challenge to keep from explicitly jawboning, or talking down, the currency but would likely hold the line.

“Any change in tone will depend on the strength of incoming data,” National Australia Bank head of Australian economics Riki Polygenis told Business Daily.