The Australian and New Zealand Dollars are both under pressure on Friday as the Turkish currency crisis worsened in the wake of an escalating dispute between Washington and Turkey. The Aussie also lost ground in reaction to a dovish central bank monetary policy statement.
The Aussie and Kiwi plunged after a report said European Central Bank officials are growing concerned about the exposure of Euro Zone banks to Turkey’s banking sector. These elevated tensions are bad news for growth prospects, commodity markets and risk appetites throughout the global marketplace.
RBA Upbeat about Economy, but Not Ready to Raise Rates
The Australian Dollar is trading lower early Friday after posting a dramatic sell-off the previous session and following the release of the Reserve Bank of Australia’s quarterly Statement on Monetary Policy and updated set of economic growth projections earlier today.
The central bank confirmed it has downgraded its 2018 inflation forecast, after flagging the change in Tuesday’s rate decision. Additionally, its longer-term outlook for inflation was little-changed. The central bank now expects core inflationary pressure to remain low through the end of 2020.
The RBA now expects both core and underlying inflation to rise by 1.75% to December 2018, down from the May forecasts of 2.25% and 2% respectively. Beyond that time frame, the central bank kept its inflation forecasts relatively unchanged. Previously, it expected both core and underlying inflation to reach 2.25% by the middle of 2020. That’s still the case, and the bank now expects the same growth rate to be maintained all the way through to December that year.
In Tuesday’s rate announcement, Lowe also said that “a further gradual decline in the unemployment rate is expected over the next couple of years to around 5%”. The RBA maintained that the unemployment rate will stay around 5.25% through June 2020, before dropping to 5% in December.
The central bank slightly bumped up its forecast for GDP growth in Q2 2018, to 3% from 2.75%. Longer-term, the bank’s growth projections were little-changed. It still expects GDP growth to average 3.25% over the next two financial years, before falling to 3% in June 2020 and remaining at that level through to December.
The latest set of projections confirmed that the RBA still looks set to keep interest rates on hold for the foreseeable future.
This article was originally posted on FX Empire
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