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'Stubborn' dollar makes further RBA rate cuts likely

Rachael Micallef  |  20 Dec 2012Text size  Decrease  Increase  |  

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Rachael Micallef is a journalist with InvestorDaily, a Sterling publication.

 

Further rate cuts are possible in 2013 as the Reserve Bank of Australia looks to ease Australia's "stubbornly strong" dollar, according to research from Principal Global Investors.

The fund manager's Central Bank Watch report said Australia's strong currency has been immune to previous rate cuts by the RBA and further monetary easing in 2013 is likely.

"The RBA has reduced the cash rate by 125 basis points so far in 2012, taking it back down to the 2012 record low of 3 per cent. Yet more monetary easing is possible next year," the report said.

"Banks are still not passing through all of the cuts in the official rate to mortgage rates, and the Australian dollar remains stubbornly strong at US$1.05 - around 65 per cent stronger than when the cash rate was last at 3 per cent."

At US$1.05, the Australian dollar is more than 70 per cent higher against the US dollar than it was in 2009.

While the report suggests the RBA might take have a pause in the easing cycle before cutting policy rates once again, the approach might become more aggressive depending on the negative impact it has on Australia's export performance.

"The Australian economy is softening and 2013 is likely to be a weaker year than 2012," the report said.

"Furthermore, given the possibility of further quantitative easing in the United States and the United Kingdom. even with further policy rate reductions by the RBA, the Australian dollar is unlikely to receive much relief next y