Forex - Aussie, Kiwi Move Lower; RBA Holds Rates

Household consumption is the engine room of the economy and it's sputtering

When it comes to Australia, UBS said that the Reserve Bank of Australia (which held the cash rate at 1.5 per cent for the 14th month in a row yesterday) will continue to "lag" the normalisation of global monetary policy.

RBA boss Philip Lowe says household consumption is a continuing source of uncertainty.

But he also highlighted slow wages growth and rising debt levels.

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"The process is still slow for most, but there are notable exceptions: wage growth in central Europe has doubled over the last few quarters, and we view Japan as being on the cusp of a substantial pick-up in inflation", said the report.

He said inflation should gradually lift but it still remains well below the RBA's own target band of two to 3 per cent.

The bank repeated that an appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than now forecast.

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"Given the recent developments, this discussion was not as dovish as it could have been", she said.

AMP Capital chief economist Shane Oliver said the RBA had to balance its forecasts of improving stronger growth and employment against ongoing low inflation, weak wages growth, uncertain consumer spending and a high Australian dollar.

Sydney's quarterly decline was the first rolling quarterly fall in dwelling values since May 2016, when the first round of macro-prudential reforms were still working their way through credit policies, and home loan rates were only just beginning to drop in line with the first cut to the cash rate. The bank had reduced the rate by 25-basis points each in August and May previous year.

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