The continued weakness of the US Dollar helped the Aussie reach a high early in the European morning on Thursday of 0.7965; its best level since the day of the US non-farm payroll figures back on February 2nd. Its early strength was not sustained, however, and the Australian Dollar slid steadily throughout the day to be the equal-worst performer (along with the USD) of all the currencies we closely track here. AUD/USD at one point lost almost three-quarters of a cent in Northern Hemisphere trading and was back on a 78 cents ‘big figure’ before climbing into the New York close around 0.7930. Overnight in Asia it has added around half a cent, though its gains have been only in line with all the other non-USD currencies.
RBA Governor Phil Lowe has today been giving his semi-annual testimony to Parliament. He repeated recent comments that the timing of Australia’s first interest-rate increase since 2010 will depend on progress in lowering unemployment and returning inflation to the midpoint of the central bank’s target. “As things currently stand, we expect that progress to be steady, but to be only gradual… Given this assessment, the Reserve Bank board does not see a strong case for a near-term adjustment of monetary policy.” On the labour market, Lowe said, ““Over time, we expect wage growth to pick up as the labor market strengthens further… The pick-up, though, is likely to be gradual. This increase in wage growth and the more general reduction in spare capacity in the economy are expected to contribute to inflation picking up as well. But to continue the theme, this pick-up, too, is expected to be only gradual.”
It is increasingly clear that wages and household incomes hold the key to RBA policy. ““Most households are experiencing only slow growth in their incomes and many expect that this will continue for some time yet. This lowering of expectations about income growth is likely to be affecting spending, especially in an environment of high levels of household debt,” the governor said. “We continue to look carefully at household balance sheets. On balance, our assessment is that there has been some containment of the build-up of risk in this area.” Just as the widening Germany-US 10-year rate differential has not helped the USD, it is perhaps a good thing for the AUD that markets are for the moment ignoring AU-US rate differentials which are now at zero for the first time in almost 20 years and look set to widen, perhaps considerably, over the coming quarters.