I've had to dust of the brain to write this.... and there is more dust than brain atm.
All imho, of course...
It's quite feasible to imagine a situation where (for example) with a falling AUD and rising oil prices (among other things, I'm just picking on two simple metrics) that the RBA Board sees inflationary pressures and starts to raise rates - even if unemployment remains at levels most objective people might find objectionable.
‘It is the duty of the Reserve Bank Board, within the limits of its powers, to ensure that the monetary and banking policy of the Bank is directed to the greatest advantage of the people of Australia and that the powers of the Bank ... are exercised in such a manner as, in the opinion of the Reserve Bank Board, will best contribute to:
a. the stability of the currency of Australia;
b. the maintenance of full employment in Australia; and
c. the economic prosperity and welfare of the people of Australia.’
See: RBA - Our Role
Central bankers love their target bands and get very attached to them - principally (I believe) because they honestly believe that a low CPI (in this case an average of 2-3% over the medium term / business cycle) is the best way they can fulfil points a, b, and c, above.
Example -> I was invited to hear Don Brash* (I'll tell you who he is in a moment) speak at the Auckland University of Technology by a friend of mine (AUT econ PhD grad) a few years ago and I asked him about the appropriateness of inflation targets (this was when the GFC was really starting to bite) and he was very adamant that the costs of even a few percentage points of inflation more than justified the use of cpi targeting as a MP regime (the costs he as referring to were things like uncertainty and the impact this can have on investment / falling real incomes, etc).
So unemployment figures alone could give you a false signal.
Like I said, I believe most objective people** would think that unemployment is a major factor, but it could just be white noise (the irony being that - for those households affected - nothing impacts upon real incomes quite as much as unemployment does).
*Don Brash was the Governor of the Reserve Bank of NZ from 1988 to 2002. The RBNZ pioneered the use of inflation targeting in 1990, and we saw fit to follow suit in 1994.
**I don't consider the RBA Board to be objective. I'm sure the world always looks pretty effing rosey when you're being served tea and biscuits on silver platters in the Boardroom of Martin Place.
but I'd like to hear what those with great understanding see as possible senario's as to what fundament changes could lead to interest rate increases further down the line.
Domestic factors (a resurgence in the resources sector chief among them) aside, imho, the elephant in the room is the US Federal Reserve (and this is old news, btw...)
By running the printing presses Bernanke has flooded the market with USD. If you stop the presses, you stem the flood. At some point
the Fed will stop or cut back on printing money. And when that happens, our dollar will fall (that's just supply and demand 101). There is some talk it could start to happen soon, but who knows until it actually
does happen...
I got into trouble a few years back
for saying this...
I suspect 70 - 80c is where most economists would estimate the fair value of the $AUD to be. So I won't go down that path....
But (and you all would have seen this) the
RBA said this on 2 July:
The Australian dollar has depreciated by around 10 per cent since early April, although it remains at a high level. It is possible that the exchange rate will depreciate further over time, which would help to foster a rebalancing of growth in the economy
There's nothing at all cryptic about that statement -> the RBA thinks the AUD is HIGH at ~90c US.
But what's going to happen first...
Will the Fed stop printing monopoly money?
Will the dollar continue to drift down?
Or will the RBA decide to bring the dollar down by cutting rates? Or will they bring the dollar down (or try to) by
talking about cutting rates? (more likely)
No-one has all the information, so it's all guestimation atm.