RBA Keeps Rates at 2.5 Percent but AUD is “Uncomfortably High”

by on December 3, 2013 5:30 am GMT

The Reserve Bank of Australia (RBA) keeps their benchmark rate level at 2.5 percent while saying that the Australian dollar is still “uncomfortably high.” This comes a week after RBA Governor Glenn Stevens left the door open on outright intervention via the foreign-exchange markets, AUDUSD trades lower by 40 pips.

“Rates are at or near the bottom of the cycle, but rate hikes are probably quite some way off,” said Craig James, a senior economist at a unit of Commonwealth Bank of Australia. James believes that as the economy continues to strengthen (is it truly or vicariously through China?), further hikes are a long time coming.

Steven’s said “the pace of borrowing has remained relatively subdued overall to date, though recently there have been signs of increased demand for finance by households.’ The Australian housing market is frothy as bubbles begin to peak over the top. The average home price in the largest eight cities was A$606,003, or $551k. Sydney homes hit a record of A$724,628.

Australian GDP is still uncertain and less perky than its housing market. Gross-domestic product is expected to grow 2.5 percent in the third quarter, which will match the slowest pace in two years.

The Australian dollar dropped four percent since the last RBA meeting, but the currency is up a massive 50 percent over the last four years. The increase has put pressure on foreign manufacturers as costs increased and jobs were cut.

Stevens still wants a lower Aussie dollar in order to spur further growth and demand while adding some certainty their Australia’s growth.

AUDUSD will find support near .9055, but the pair is likely to trade lower to rest .9000 support.