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Reserve Bank of Australia keeps cash rate at 1.5%

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Pound to Australian Dollar: Forecast For the Rest of the Week

However the uptick in the Australian Dollar proved to be short lived last night following the conclusion of the Reserve Bank of Australia's (RBA) latest monetary policy meeting.

He said Dr Lowe's reference to higher commodity prices against the backdrop of expected weaker terms of trade also indicated the RBA was unconvinced a recent bounce in commodity prices was sustainable.

Although they noted that "an appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than now forecast", at its current level, the AUD has not materially affected their forecasts.

But he warned that recent rise in the Australian dollar "is expected to contribute to subdued price pressures in the economy" as well as "weighing on the outlook for output and employment".

The Dow Jones was up 34 points but U.S. tech stocks dragged the broad S+P 500 down 0.1 per cent thanks to Amazon's weaker than expected results on Thursday night. Investors in residential property are facing higher interest rates.

RBA last cut rates in August 2016, when it made a decision to trim 25 basis points to avoid the risk of deflation.

He said the economy was still expected to grow at an annual rate of three per cent for the next few years but stressed that forecast may change should the Australian dollar continue to rise.

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While retail sales have recently rose, slow growth in real wages and huge household debt may possibly restrain the increase in spending.

And he did point to the disturbing trend that "growth in housing debt has been outpacing the slow growth in household incomes".

The Australian share market is expected to start the week higher, bouncing back from Friday's 1.4 per cent plunge on the back of concerns about the United States economy and the direction of U.S. government policy.

"Our view remains that the RBA will be on hold for the next year at least, with risks around the consumer, a housing slowdown, inflation and the Australian dollar preventing hikes but a fading in the drag from the mining investment slump and solid employment growth heading off cuts".

One bright spot for the economy is the prospect of recovery in business investment spending. Higher prices for electricity and tobacco are expected to boost CPI inflation.

The governor noted jobs growth has been stronger over recent months and was expected to continue strengthening but said wages growth remains low and is expected to stay that way for some time.

Nicholas Gruen, CEO of Lateral Economics, was far more succinct when explaining why he believed rates would remain steady.

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