Last week, Aussie dollar was seen to witness a plunge against the greenback, and a lot has been now talked about the dollar given the vulnerable position of the economy at the back of the slow retail sales (retail sales fell by -0.6% for the month of August) and mounting household debt (which is about 189% of income). Market is also expecting a downward move for the dollar in and around the level of 0.7500.
It has been recently highlighted that household debt is the key deterrent to economic growth and should be curtailed now for better prospects. The recent plunge in the Aussie dollar and Reserve Bank of Australia’s commentaries are also being linked to completion of the shift from the mining boom. However, the aim to have a dollar value that improves national income and inflation scenario is what is being eyed for. To manage inflation, the price stability also needs to be maintained as per the RBA.
While the recent view from Governor Philip Lowe on Australian economy indicated for having a hike in interest rates in the coming years, the current scenario might force the RBA to slash the same instead considering the inflation, which again may hit the household debt. However, without any rise in interest rates, the Aussie dollar may remain little submissive. It is important to note that the dollar had stayed strong earlier given that Australian interest rates which were at comparatively higher levels and the economy attracted global funds for solid returns. This position appears to witness a shift now with Australian interest rate at 1.5%, while the US interest rate at 1.25% is anticipated to rise in the coming months. Eventually, there could be a driving force for the global fund to look for another zone of attraction and this is expected to further impact the Australian dollar.
The weakening commodity prices, particularly, the iron prices (which is one of the key commodities) are also been seen to build up some pressure on the Australian dollar.
The overall complex scenario thus needs a balanced view from the RBA which has lately remained cautious on rates. Only a judicious approach can address the highlighted issues in order to have a rebound in economic condition.
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