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Australian central bank disappoints market expecting strong currency statement

The Reserve Bank of Australia kept the cash rate unchanged at 2.5 percent, as expected, while delivering less of a warning about the strength of the Australian dollar than some traders had expected, nudging the currency higher.

Governor Glenn Stevens changed his language about the Australian dollar in today's statement compared to last month's monetary policy review but not as much as some traders had been betting.

"The exchange rate remains high by historical standards, particularly given the declines in key commodity prices, and hence is offering less assistance than it might in achieving balanced growth in the economy," Stevens said.

A month ago he was noting that a weaker Australian dollar was assisting to achieve balanced growth in the economy but since then the currency has climbed 2 percent against the greenback. It rose as high as 94.57 US cents after the statement, the highest since mid-April.

Also since the last statement on June 3, government figures have shown the Australian economy grew 1.1 percent in the first quarter, beating economist expectations and the fastest pace in two years. Stevens reiterated that the most prudent course for the central bank was likely to be "a period of stability in interest rates."

Westpac Banking Corp chief economist Bill Evans said Stevens' currency comments were arguably "somewhat stronger" although the changes weren't significant. "To have restored the 'uncomfortably high' language around the currency that was used in the last four months of 2013, the bank would have to have backed it up with an easing bias," Evans said. "At this stage the general description around the economy is seen by the bank not to justify such a choice."

Stevens reiterated the bank's view that the global economy was continuing at a moderate pace and that while China's growth had slowed it was general in line with policymakers' objectives.

He repeated that inflation was expected to remain consistent with its 2 percent to 3 percent target over the next two years. He also reiterated that economic growth "looks to have been somewhat firmer around the turn of the year," driven by exports of resources, while consumer growth has had moderate growth.

(BusinessDesk)