Dollar upbeat on RBA outlook

The local unit was stronger in afternoon trade, following a positive economic forecast from the Reserve Bank.

RBA Governor Philip Lowe also gave the Australian dollar a lift, saying it was hard to justify argument that it was overvalued at current levels. Picture: istock.

The Australian dollar climbed on Friday on an upbeat assessment of the economic outlook by the Reserve Bank of Australia, which economists said signalled no immediate risk of interest rate cuts.

At 3.58pm (AEDT), the Australian dollar was at US76.42 cents, compared with US76.25c late yesterday.

In a new batch of economic forecasts, the RBA said the economy is expected to bounce back from a contraction in the third quarter of 2016 to grow by 3 per cent on-year in 2017, accelerating to 3.25 per cent in 2018.

Unemployment is expected to range between 5 per cent and 6 per cent over coming years, compared with 5.8 per cent currently, it added. Core and headline inflation are set to rise gradually over time, returning to the RBA’s desired 2 per cent to 3 per cent target band by mid-2019, from around 1.5 per cent now.

The RBA left interest rates steady at a record low 1.5 per cent at a policy meeting on Tuesday, indicating it expects no change in rates for some time.

Overnight, RBA Governor Philip Lowe said the resource-rich economy was 90 per cent way through a painful downswing in mining investment, which has been a stiff headwind to growth for around five years.

Governor Lowe also gave the Australian dollar a lift saying it was hard to justify argument that it was overvalued at current levels.

Citigroup said the Australia central bank’s economic and inflation forecasts imply the RBA doesn’t believe further easing of monetary policy will be required.

“The broad narrative, as presented in this week’s policy statement and a speech Thursday by Governor Lowe, was a glass-half-full view of the outlook,” the investment bank said.

But Citi’s view is that the RBA may further downgrade its inflation and growth forecasts in May, so markets should price in some risk of easing, not tightening, this year.

Dow Jones