Aussie recovers after RBA, NZ dollar hits 3-month peak

All eyes are set on the Reserve Bank of Australia (RBA) which will release its monthly policy statement at 04:30 GMT.

Keeping the cash rate unchanged for a tenth consecutive month, Reserve Bank Governor Philip Lowe again highlighted concerns about weak wages growth and a patchy housing market.

"As long as the RBA can attribute quarter-to-quarter volatility in GDP outcomes to unusual weather - higher-than-is-usual rainfall in eastern Australia in the first quarter, Cyclone Debbie in the second quarter - RBA neutrality is likely to persist for some time yet", said JPMorgan rates strategist Sally Auld. Net exports likely to have subtracted 0.7ppt from Q1 GDP growth.

The cash rate has been on hold for 10 consecutive months since August a year ago, when the RBA slashed rates to combat weaker-than-expected inflation.

"Slow growth in real wages is restraining growth in household consumption", he said.

The Australian dollar rose, buying 74.90 U.S. cents at 2:58pm in Sydney compared with 74.74 United States cents prior to the decision.

Wide variations in the housing market have also contributed to uncertainty in the economy.

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"[House] prices have been rising briskly in some markets, although there are some signs that these conditions are starting to ease", Dr Lowe said. Inflation is forecast to increase gradually as the economy strengthens.

The surging prices are widely seen as being behind the RBA's decision to hold off on further rate cuts owing to worries it would stoke more debt-funded speculation and push the cost of housing even higher.

"If anything, economic performance and risks still suggest there should be an easing bias and property markets/debt accumulation suggest a tightening one", Mr Joiner said.

All 24 economists polled by Bloomberg expect the cash rate to remain at 1.50%, with financial markets ascribing a next-to-nothing chance of a move in either direction.

"They are going to overlook the slowdown in GDP as a temporary blip".

As far as consumer prices go, the central bank's expectations are largely being met. Headline inflation returned to the bottom end of the RBA's 2% to 3% target in the first three months of the year after spending nine quarters below it, but the key core measure is yet to catch up.

Paul Dales, chief Australia and New Zealand economist at Capital Economics, downgraded his GDP forecast for Australia to a 0.5 percent quarter-on-quarter contraction.


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