Aussie stocks rise and currency falls as RBA eyes further easing

Australian stocks rose while the country’s currency slipped after the central bank confirmed that it was likely to cut interest rates further. 

The Reserve Bank of Australia reduced interest rates for the first time in more than three years on June 4 to a record low of 1.25 per cent from 1.5 per cent. 

In minutes related to the decision published on Tuesday, members of the central bank’s board said “it was more likely than not that a further easing in monetary policy would be appropriate in the period ahead,” pointing to spare capacity in the country’s labour market.

Australia’s unemployment rate, which stood at 5.2 per cent in April, is only expected to decline “a little”, while underlying inflation is forecast to pick up “only gradually”.

The nation’s equity benchmark, the S&P/ASX 200, rose 0.5 per cent after the minutes were published, while the Australian dollar fell almost 0.2 per cent against its US counterpart. Australia’s currency is trading at around its lowest value versus the greenback since January 2016, while the country’s equity index is at a more than 11-year high.

Ben Udy, an economist at Capital Economics, said: “The minutes of the RBA’s June meeting confirmed that interest rates will probably fall further in 2019.” He thinks that the bank will reduce interest rates to 0.75 per cent before the end of the year, adding that the RBA’s comments on Tuesday represented an “explicit easing bias”. 

The central bank’s decision to cut its key policy rate earlier this month came after data showed the Australian economy fell to its weakest rate of growth in almost a decade in the first three months of the year.

Australia’s economy has experienced an extraordinary long run of unbroken growth, having not experienced a year-on-year contraction since 1991. However, it is now faced with challenges posed by slower growth in China, a domestic housing downturn and weak consumer spending that some economists have warned could end its record run.