Weak Aussie dollar means rate cut unlikely

A WEAKENING of the Australian dollar since the beginning of May will be enough for the Reserve Bank to leave the cash rate on hold at 2.75% when it meets on Tuesday.

HSBC chief economist Paul Bloxham said the central bank's decision to cut in May was largely due to the strength of the dollar, which was putting downward pressure on inflation.

Since then the dollar has fallen -6% against the United States dollar, which Mr Bloxham said probably had more to do with a resurgence in the US currency than the RBA's action.

"(But) Whatever the forces behind it, the Australian dollar would be welcomed by the RBA," Mr Bloxham said.

"Indeed, had the Australian dollar been at its current level when the RBA met last month, we suspect it may not have cut rates."

"For this reason, we expect the RBA to remain on hold."



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