Australian Dollar drops sharply after RBA Governor Philip Lowe dropped the rhetoric that the next move in interest rate is more likely a hike than a cut. Instead, he said the probabilities of hike and cut are now more “evenly balanced”.
Lowe delivered a speech “The Year Ahead” to the National Press Club of Australia today. Lowe maintained the view that ” tighter labour market and reduced spare capacity will see underlying inflation rise further towards the midpoint of the target range.” And given that, RBA “maintained a steady setting of monetary policy” yesterday.
However, he also noted given the uncertainties ” it is possible that the economy is softer than we expect, and that income and consumption growth disappoint.” In particular,  “in the event of a sustained increased in the unemployment rate and a lack of further progress towards the inflation objective, lower interest rates might be appropriate at some point.
Thus, on the scenarios of next-move-is-up and next-move-is-down, “the probabilities appear to be more evenly balanced.” Though Lowe also maintained that RBA “does not see a strong case for a near-term change in the cash rate”.
