AUD Falls as Growth Forecasts are Slashed

The Australian Dollar pared from its six month high after the RBA lowered its growth forecasts and inflation for the year. The forecast is expected to urge policy makers to review the interest rates downwards.

The Australian Dollar weakened against its major peers after the Reserve Bank of Australia announced that the economy is expected to grow by 3.5% in 2012 down from the previous estimate of 4%. The drop came amidst a lot of speculation about the Greece debt crisis. Lawmakers in Greece are voting on the austerity measures that are required to win a second bailout package.

Some analysts in Asia are saying that the RBA is still showing an easing bias which is portrayed in their revision of the growth forecast downwards. Analysts are claiming that the half-a-percent scaleback is pretty huge weight on the Aussie hence the declining trend it took. The Australian dollar lost 0.7 percentage points against the dollar to sell at $1.0714 in Sydney session. Against the yen it lost 0.7% settling at 83.18 yen. This trend has been experienced since the Feb. 3 where the Australian Dollar has lost 0.5 percentage points against the US dollar. This is the first five day consecutive drop the AUD has experienced eight weeks.

The Reserve Bank of Australia said in its monetary policy today that the inflation rate would remain at the midpoint of the target range in the next two years. The statement also stated that the consumer prices should provide a measure for easier monetary policy which requires demand conditions to weaken materially.

The statements forecasts that the consumer prices will increase by 3 percent through to the fourth quarter of the year. This represents a lower rate than the one predicted earlier of 3.25%. In addition, the Reserve Bank of Australia said that the estimates are based on the overnight cash rate target that remain at the current level of 4.25 percent and it indicated that the forecast for the underlying inflation is unchanged at 2.75 percent. This news was held in mixed reaction in Europe as the Greek Prime Minister announced that they have reached at a general agreement.