The Reserve Bank of Australia (RBA) on Friday stuck to its stance of keeping interest rates at a record low for some time, sending the Australian dollar to a two-month low against the greenback.
The central bank said low interest rates and resource export growth are helping to offset declining mining investment and ongoing fiscal consolidation.
"The Board's judgement is that monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target," the RBA said.
The central bank now sees the economy growing at a 2.5 percent pace at the end of 2014, down slightly from 2.75 percent in the May statement. It then expects a pick up to 2.5-3.5 percent by the end of 2015 and 2.75-4.25 percent by end-2016.
It also lowered its 2014 underlying inflation forecast to 2.25 percent, from 2.5 percent previously, due in part to the recent abolition of a carbon tax by the government. But it anticipates a slightly higher reading of 2.25-3.25 percent for December 2015, versus 2.0-3.0 percent previously.
Dismal jobs figures from Australia on Thursday triggered some speculation that the central bank may step in with further easing measures. The economy unexpectedly lost 300 jobs in July, against expectations for the addition of 12,000 jobs. Jobless rate also spiked to a 12-year high of 6.4 percent from 6 percent in June.
The RBA downplayed the weak jobs data in Friday's statement, saying the figures "in part reflect a notable change to the definition of unemployment in the month of July, as well as unusually large effects from rotation of the survey sample."
The central bank this week kept interest rates steady at a record low of 2.5 percent for a 12th month. Rates have been kept low to support growth as Australia struggles to rebalance its economy away from its once-booming resource sector, which has been hit by a fall in demand from China.
While most analysts don't see the central bank cutting rates further, Morgan Stanley believes the risk exists, which would drive the Australia dollar lower.
"I think if there's a risk, it's that they cut rates. [Push] the clock forward to middle of next year when the markets suggest that the Federal Reserve will be raising rates and we think the gap between 2-year rates in Australia and the U.S. could be down to 5000 basis points which is low by historical standards," Malcolm Wood, head of investment strategy at Morgan Stanley Wealth Management, told CNBC.
According to Chris Weston at IG, if the RBA had to "go one way now, it's lower. Still for me the central bank is on hold for the year, and in fitting with the trend in the central banking world, it will provide a signal to guide the market and it is notable that this will involve changing the last paragraph in its rates statement."
The Aussie dollar fell to as low as $0.9236 on Friday, although losses were tempered by solid trade data out of China. But Morgan Stanley's Wood expects further falls to come for the currency.
"We think the Aussie dollar's fair value is at the mid-80s. Reserve Bank governor a few weeks ago said that the Aussie is overvalued by a few cents, we endorse that view," he said.
— Reuters contributed to this report.