Dollar holds the line

After the Reserve Bank of Australia (RBA) left the cash rate on hold, the Australian dollar retained some of its gains — trading as high as US94.35 cents overnight before slipping slightly to around US93.52 cents in late trade.

NAB and ANZ economists pushed their forecast for the next RBA cash rate cut from November to February 2014 because the RBA appeared comfortably on hold. Despite this, they still expect the economy to underperform, which could prompt a cut in early 2014.

Weaker-than-expected building approval figures contributed to a slight slip in the Australian dollar after it had traded higher, highlighting how domestic economic data can quickly influence currency moves.

Economists from NAB and ANZ revised their expectations and now see the next RBA cash rate cut occurring in February 2014 rather than November of the current year.

The article cites rising unemployment and weaker-than-expected inflation figures — along with softer data like building approvals — as the kinds of indicators that could push the RBA toward another cash rate cut in early 2014.

‘RBA comfortably on hold’ means the central bank is not feeling immediate pressure to change rates right now. For investors, it signals short-term rate stability but also the possibility of a future cut if economic weakness (such as higher unemployment or low inflation) persists.

A pushed-back cut can support the Australian dollar in the near term, while expectations of an eventual rate cut (as economists forecast for early 2014) can weigh on the currency and affect interest-rate-sensitive assets like bonds, property and bank deposit returns.

Investors should keep an eye on inflation data, unemployment trends and monthly indicators such as building approvals, because these figures were highlighted by economists as factors likely to influence the timing of any future RBA cash rate cut.