Rising A$ may ward off rate rise

Little new has emerged in the past week in the interest rate outlook and the chances of a rate rise as soon as August still hang on the release of the June quarter inflation figures on Wednesday. The heat came off nicely in the March quarter with the inflation rate settling back to well within its target range. But the Reserve Bank has warned that inflation is likely to rise again from those levels and at the first sign of underlying inflation measures heading North again the RBA board is likely to act on interest rates. But at this stage it's not likely that the coming week's inflation result will be bad enough to bring on an immediate response to raise rates. The economy so far has shown great resilience to inflationary pressures that had been fully expected to emerge amid the strong growth experienced in recent times. Now, the rise of the Australian dollar offers more insulation against inflation, reducing the prices of the large volumes of imports being sucked in to our hungry economy. The Aussie dollar going over 80 cents during the last quarter will have started to have an anti-inflationary impact that will only grow this year as it heads towards US90 cents. Already at an 18-year high against the US dollar, the rising Aussie is likely to hit exports hard next year and put a drag on economic growth. But at least for borrowers, the rise is good in the short term, reducing the likelihood or at least the magnitude of interest rate rises.