The RBA just warned the Australian dollar is too high

Weekly AUDUSD

'The Australian dollar has appreciated recently, partly reflecting a lower United States dollar'.

The higher exchange rate is likely to contribute to subdued price pressures in the economy.

While this had been largely priced in by investors, the RBA's warning that the 'Aussie's recent strength has been placing pressure on the Australian economy caused the antipodean currency to relinquish almost all of its overnight gains.

"This marks a further pick-up in the RBA's attempts to jawbone the Australian dollar lower or at least stop its ascent that got underway with deputy governor Guy Debelle saying just over a week ago that a lower exchange rate '...would be helpful'", Mr Oliver said.

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 main event this week is the Reserve Bank of Australia (RBA) rate meeting out at 5.30 BST on Tuesday morning, August 1.

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.

He said the economy was still expected to grow at an annual rate of three per cent for the next few years but stressed that forecast may change should the Australian dollar continue to rise.

According to Forex.com's market analyst Fawad Razaqzada, the RBA may not be happy with the Aussie's recent appreciation and could wish to talk it down, however, there is a risk that the RBA may not and, "the real surprise would be if the RBA were to show very little or no concern about the Aussie dollar's recent strength".

The Reserve Bank remains hopeful that tighter prudential rules are beginning to bite.

We suspect that both growth and inflation will ultimately turn out lower than the RBA anticipates.

Indeed, at a recent speech at the Anika Foundation Luncheon in Sydney, RBA Governor Philip Lowe said that "the persistent slow growth in wages is creating a challenge for central banks". In other markets, housing prices were declining. With business conditions improving, and capacity utilisation increasing, "some pick-up in non-mining business investment is expected". Higher prices for electricity and tobacco are expected to boost CPI inflation.

Also helping keep a lid on inflationary pressures was average wage growth - a factor that continues to hamper consumer spending and price growth in many major economies.

They're expected to show continued solid jobs growth in the United States with 180,000 new jobs created in July and a fall in the unemployment rate, coupled with subdued wages growth. Commodity prices have generally risen recently, although Australia's terms of trade are still expected to decline over the period ahead.

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