The Australian Dollar rose against the US dollar today after the Reserve bank of Australia (RBA) released the minutes of the monetary policy meeting held on 3rd of July. In the minutes, the officials reiterated their confidence on the country’s economy. In the first quarter, the country’s GDP rose by 3.1 per cent which was above the estimates. The quarterly increase of one per cent was stronger than the bank’s forecast of the last years fourth quarter. In addition, the non-farm GDP growth had risen by 3.6 per cent until April this year. The demand from the domestic markets also continued an upward trajectory that started in 2013. However, the consumption was a little subdued in the March quarter with the consumption of goods passing the consumption of services.
Another concern for the RBA officials was on the growth of household income. On this, they said:
‘Compared with the average of the preceding 20 years, growth in household income had remained subdued over the most recent couple of years, with growth in all components of income remaining below average. Nevertheless, growth in labour income had increased to its highest rate since 2012, in line with solid growth in employment. Measures of growth in average hourly wages had also increased. Nonetheless, wages growth remained low, consistent with ongoing spare capacity in the labour market and some structural forces that had also been evident in other economies. Growth in other sources of household income, including income from government assistance, investments and rent, had continued to be weak, as over the prior couple of years.’
This has been reflected in the recently-released data which have shown slow growth in earnings. This growth has impacted the pace with which the central bank can move to increase interest rates. This is because as tightening at a period when the people’s income is not growing will lead to more problems. While the unemployment rate has remained low, the participation rate has disappointed. The participation rate is a measure of the number of people who are actively looking for work.
The officials continued with their concerns about the housing prices in the developed markets of Sydney and Melbourne. In these cities, the prices of houses has continued to decline, fuelled by reduced demand and increased supply. In Sydney, housing prices have fallen by more than 5% with the most affected houses being the expensive ones. Housing units targeting the lower part of the market has remained a bit stable.
In addition, the exporting industry has increased with the coal industry rebounding. The rebound on coal was attributed to the increasing demand of coal after a major disruption in the LNG supplies in Western Australia.
On the international scene, the officials were cautious about the ongoing crisis which was started by Donald Trump’s decision to levy tariffs on Chinese goods and global steel and aluminium. The officials believe that while Australia has not been a major focus of the Trump administration, the country could be affected as the global growth slows.