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In its latest meeting on September 24, 2024, the Reserve Bank of Australia (RBA) decided to keep the cash rate unchanged at 4.35%1. This decision was influenced by persistent inflation, which remains above the target range of 2-3%, despite significant declines since its peak in 2022. The RBA highlighted that while inflation has fallen, it is still expected to return to the target range only by 20261.
In contrast, the U.S. Federal Reserve took a more aggressive stance by cutting its federal funds rate by 50 basis points to a new range of 4.75%-5.00%. This marks the first rate cut in four years, driven by moderating inflation and a weakening labor market. The Fed’s decision reflects a shift towards supporting economic growth amid signs of a slowdown.
The differing monetary policies between the RBA and the Fed have had a notable impact on the Australian dollar (AUD). Following the Fed’s rate cut, the AUD strengthened against the USD, reaching its highest level for 2024 at 68.53 US cents2. This appreciation is expected to continue, potentially reaching 70 US cents in the coming months2.
Australia’s labour market remains relatively stable. As of August 2024, the unemployment rate stood at 4.1%, with the participation rate at 67.0%. Employment increased to 14,443,600, and the underemployment rate remained at 6.4%. These figures indicate a resilient labour market despite economic headwinds.
Inflation in Australia has shown signs of easing. The annual headline inflation rate fell to 2.7% in August 2024, down from 3.5% in July. This decline was partly due to government cost-of-living measures, including energy rebates. However, the trimmed mean inflation, a key measure of underlying inflation, remained at 3.4%, indicating that core inflation pressures persist.
The Australian housing market continues to experience mixed trends. National home values increased by 0.5% in August 2024, marking the 19th consecutive month of growth3. However, the pace of growth is slowing, with Sydney’s home values growing modestly by 0.3% in August, while Melbourne saw a slight decline of 0.2%3.
Regions like Perth and Adelaide are still experiencing strong growth, with Perth’s home values rising by 2.0% in August3. The demand for housing remains high, particularly in areas with limited supply, but affordability concerns are becoming more pronounced4. The lower quartile of the combined capital city market, which represents the most affordable 25% of dwellings, saw a 2.7% rise in values over the past three months4.
The Australian stock market has shown resilience in September 2024, with the S&P/ASX 200 index experiencing a 2.1% rise over the past week1. This positive momentum has been driven by gains across all sectors, contributing to a 13% increase over the past year1. The index is currently just shy of an all-time high, buoyed by optimism from Wall Street and hopes for a favorable economic scenario in the US2.
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