• RBA underlined its dovish stance in the minutes from the November’s meeting
  • Australian dollar hasn’t moved significantly due to the release, further losses expected though
  • Asian equity markets mark the excellent performance after moderate increases on Wall Street

The Asian session did not bring too many economic releases except for the RBA minutes from its latest meeting in November. The central bank underlined that any further rises in the AUD would slow an expected pick-up in inflation and economic growth alike. There is no a new comment with regard to the ex-change rate therefore a response of the currency has been fairy subdued thus far. Below we present key points from the minutes:

  • steady policy consistent with the goals of inflation and growth
  • there is considerable uncertainty as to how quickly wages might pick up and thereby boost inflation
  • a pass-through effect to inflation could be delayed by a lot of factors including retail competition (this competition might restrain retail margins as well)
  • the domestic labor market is surprisingly strong and this scenario ought to continue
  • GDP growth is expected at around 3% over the next few years while productivity is forecast to stay subdued
  • the housing market has eased in all major cities, however Melbourne holds still relatively heightened prices

First and foremost there are many uncertainties concerning a relationship between wages and inflation and the time needed to push up price growth. On the other hand a forecast of muffled productivity does not bode well for the future wage growth as companies might want to limit their labor forces when costs of new employees exceed the value of goods and services produced by them. Therefore, one may conclude that the Australian economy needs higher wages along with higher productivity growth in order to see self-sustaining inflation. Nevertheless when it comes to a connection between wages and inflation needles to say that this issue is faced by many economies all around the world, hence there is rather a global dilemma not an internal problem of the Australian economy. To sum up, the first rate increase seems to constantly the distant future as it could take place at the end of 2018 at earliest or even in 2019 depending on further developments in wages and inflation.

link do file download linkThe Australian dollar continues sliding and remains decisively below its local resistance in form of a downward trend line. The closest target might be at 0.7500, if it’s broken sellers could aim 0.7320. Source: xStation5

While the FX has been quite benign the Asian stock markets have made the excellent performance so far (many of them have yet to be closed). Hang Seng has been the most standout index adding almost 2% to its valuation. In turn indices in Japan and Australia increased 0.7% and 0.3% respectively. In this respect one needs to mention the yesterday’s session on Wall Street which ended up with moderate gains and this outcome could have improved sentiment of Asian investors.