The Dow Jones was up 34 points but United States tech stocks dragged the broad S+P 500 down 0.1 per cent thanks to Amazon's weaker than expected results on Thursday night. Citing complications to the evolution of the economy, the statement went further to explicitly address commonly held fears in respect to the deflationary impact of the elevated Aussie which the bank believes will "contribute to subdued price pressures" and have a knock on effect on the wider economy through employment and exports.
Currency traders have been selling Australian dollars at a premium against the US dollar ever since US Federal Reserve chair Janet Yellen cast doubt on further rate hikes.
He said Dr Lowe's statement "effectively says that a stronger Australian dollar amounts to a de facto monetary policy tightening which threatens the RBA's growth forecasts".
The Reserve Bank could be reviewing its 2 to 3 per cent inflation target band according to former RBA board member John Edwards.
More recently, the USA dollar has lost ground as investors have concluded that the United States central bank won't raise rates again this year because of feeble U.S. inflation.
The economy is forecast to grow at an annual pace of around 3 percent over the next couple of years.
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But the Aussie's relative strength has subdued price pressures.
The Reserve Bank remains hopeful that tighter prudential rules are beginning to bite. "With inflation low and particularly wages growth very low, there is no need to raise rates for at least two years".
Higher commodity prices, weak USA dollar, and the lingering belief that RBA might turn hawkish with its policy, are what keeping the Aussie strong.
Finally, CACIB notes that the USD's recent downtrend remains the key theme in the FX markets and price swings around the trend will remain the key source of FX volatility. The economy is nearly out of the reversal of mining investment that had been weakening growth of late - another bonus.
The bank said in its statement: "Retail sales have picked up recently, but slow growth in real wages and high levels of household debt are likely to constrain growth in spending".
There is also likely to be a short-term pick up in inflation, as measured by the consumer price index, as higher electricity and tobacco prices flow through. The various forward-looking indicators point to continued growth in employment over the period ahead. A factor working in the other direction is increased competition from new entrants in the retail industry. It pointed to a gradually improving economy, though rising household debt remained a concern.
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