Australian dollar above 'fundamental value', RBA sees slack in labour market

Governor of the Reserve Bank of Australia Glenn Stevens

The Reserve Bank of Australia strengthened its language on the Australian dollar, saying the currency was high relative to fundamental value, while at the same time sounding more upbeat about the local economy.

The RBA kept the cash rate unchanged at 2.5 percent and continued to say a "period of stability" in interest rates was warranted given the outlook for inflation.

On the Australian dollar, governor Glenn Stevens said it "remains above most estimates of its fundamental value," especially given the decline in commodity prices. In last month's review, he only noted the currency was high by historical standards.

The Australian dollar last traded at 92.98 US cents, having fallen from 93.33 cents in the course of the day, after current account figures were revised showing a weaker track over the first half of the year. In July it was as high as 95.04 US cents.

The latest statement notes gradually improving business conditions and a recovery in household sentiment. It also firmed up its view of investment in parts of the economy other than resources, where there is continued decline. Now they are said to "continue to improve".

Another change to the language was to drop reference to there being a low probability of any rise in global interest rates, as it had said last month.

Much of the statement was little changed from what Stevens said in his Aug. 5 statement, where he also kept the rate unchanged along with the wording on the outlook for inflation, which would remain within its 2 percent to 3 percent target range over the next two years.

Stevens was dimmer about the Australian labour market, especially given government figures since last month's statement showed the jobless rate rose to a 12-year high in July. He noted the labour market had "a degree of spare capacity" and it would be some time before the rate declines consistently.

(BusinessDesk)

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