RBA hopes US rate hike will help

8.RBA hopes US rate hike will help

By Jason Cadden
(Australian Associated Press)

The US Federal Reserve looks certain to spoil the party for Australian borrowers.

The latest minutes of the Reserve Bank’s board meeting show that the US Federal Reserve’s first interest rate rise in nine years, expected next month, was high on the agenda in August.

If the Fed goes ahead with its much-anticipated rate hike, the Australian dollar is expected to fall further against the greenback, making the chance of another rate cut here less likely.

Expectations that the Fed will raise its interest rate has helped the US dollar rally in recent months.

The Aussie dollar, which has fallen by more than 20 per cent against the greenback in the past year, is also under pressure from falling commodity prices and China’s dramatic depreciation of its currency.

The RBA minutes said the US dollar could appreciate further if the Fed raises rates.

RBA officials have long wanted the Aussie dollar to weaken, not just against the greenback but against other currencies in order to boost exports and the local economy.

But the August minutes show the RBA is happier with the currency’s current level of around 73 US cents.

“Further depreciation of the Australian dollar was expected to impart stimulus to the economy through stronger net exports,” the RBA said.

The National Australia Bank this week downwardly revised its forecast for the Aussie dollar saying it will be dip down to 68 US cents in the first half of 2016. NAB previously forecast a low of 71 US cents.

It is the first large bank to predict that the Aussie dollar will fall below 70 US cents.

NAB said the US Federal Funds rate rising from its near zero per cent level combined with the People’s Bank of China gradually moving its currency lower will push the local dollar even lower.

“The beginnings of what is still expected to be a long slow US interest rate tightening cycle, suggests such a further easing in the Chinese exchange rate is likely, which is likely to be something of a drag on other Asian currencies more broadly and also for the Australian dollar,” the NAB said.


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