But the Australian dollar’s strength against most other major currencies is likely to shield households from a spike in inflation, which is already tippedThe Australian dollar traded near a 28-month low of US66.2¢ on Friday, having lost 8 per cent of its value against the greenback since the start of the year.
But a combination of strong export prices, policy certainty, and economic growth in China would support a recovery in the Australian dollar throughout next year, he said. “Given the Fed’s aggressive stance, it now seems more likely than not that the RBA will lift rates by 0.5 per cent in October – as one emerging extra consideration is to limit potential further declines in the Australian dollar, which would add to imported inflationary pressure,” Mr Bassanese said.Previous research by the Reserve Bank found a 10 per cent fall in the exchange rate lifted import prices by 8 per cent and consumer prices by 1 per cent.
Australia’s trade weighed index , which measures the value of the Australian dollar against the currencies of its major trading partners, is 2.1 per cent higher in the year to date. “It will have a small effect on inflation because a lot of import contracts are written in USD initially,” he added.
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