RBA Cuts Inflation Forecast, U.S. Employment Numbers Out Today

The Reserve Bank of Australia cut its inflation forecast for 2016 Thursday, triggering a drop in the Aussie dollar. The central bank left other economic growth forecasts unchanged but issued a warning about uncertain wages and price pressures, hinting at the possibility of another cut in interest rates.

The official RBA target range for headline inflation for 2016 is between 2 and 3 per cent. The most recent data showed that headline inflation was 1.3 per cent year-on-year in the March quarter, down from 1.7 per cent in the final three months of 2015. Core inflation was running at annual pace of 1.5 per cent in the first three months of this year.

The Australia dollar fell sharply--as much as 0.7 per cent to A$0.7411-- on the report.

The RBA explained that the downward correction reflects expectation that domestic pressures, including labor costs, will improve slower than previously anticipated. Forecasts for wage growth have been cut and should "remain around current low levels for longer than previously forecast and pick up only very gradually."

According to Paul Dales at Capital Economics, there is a clear assumption that monetary policy will need to do more to boost underlying inflation and that Tuesday’s 0.25% rate cut to 1.75% will probably be followed by another cut in August.

U.S. Employment Numbers

Asian markets lost some ground on the news while most investors are waiting for the release of the April U.S. non-farm payroll numbers due out today. Analysts are forecasting that approximately 202,000 jobs were created in April and that the unemployment rate and monthly earnings growth will remain unchanged at 5 per cent and 0.3 per cent.

 

Cina Coren
Cina Coren is a former Wall Street broker and financial advisor. She holds a Master's degree in Communications and spent many years writing for international news outlets and journalistic publications. Today, Cina spends most of her time writing internet articles and blogs, and reading various newspapers to stay on top of the news.