Falling Aussie dollar could stave off rate cuts

by Adam Smith05 Jan 2015
The Australian dollar has hit a five-year low, falling closer to levels touted as desireable by the RBA.

The local currency fell to 80.71 US cents in overnight trade, according to News Ltd. The fall brought the Australian dollar to its lowest level since May 2010.

The fall has brought the Aussie dollar closer to levels RBA governor Glenn Stevens said would be appropriate. In an interview with The Australian Financial Review last month, Stevens said the currency should sit close to 75 US cents.

Stevens’ commentary in December seemed to hose down speculation on further Reserve Bank rate cuts. Stevens told The AFR that the economy, unemployment rate and inflation were where the Reserve Bank expected.

With a lower Australian dollar stimulating the economy, the likelihood of rate cuts may have further shrunk. CommSec chief economist Craig James told Fairfax that the “double whammy effect” of a weak Australian dollar and falling petrol prices could see the RBA remain sidelined for the foreseeable future.

"The economy has moved in precisely the right direction in the past few months,” James told Fairfax.

COMMENTS

  • by Concerned Broker 7/01/2015 9:14:43 AM

    And what about inflationary pressure due to Rising Imports?