Archive for the ‘Australian Dollar’ Category

May rate cut on the cards

Tuesday, April 10th, 2012

Pressure is mounting on the Reserve Bank of Australia (RBA) to cut the cash rate in May after unexpected hurdles slow the nation’s growth. The increasing cost of living may spark the RBA to drop rates, with average petrol prices over the long-weekend over $1.50 according to the Australian Institute of Petroleum.

The latest RP Data statistics also show a flat market with house prices, with no improvement seen over the first quarter of the year. Poor results are expected in the housing finance and employment results which will be released by the Australian Bureau of Statistics later this week.

International news is also making its mark on Australia with a slowing growth rate in China also causing damage at home. Spain conceded its debts will balloon this year to their highest level for two decades. The Spanish government announced that the debt-to-GDP ratio will leap to 79.8 per cent in 2012 from 68.5 per cent last year.

Also, news of tension between the US and China over the holiday may cause the Australian market to suffer according to the Australian Financial Review, despite the US government playing down the fears of confrontation.The industry will be keeping a close eye on the release of vital indicators in the coming week including consumer sentiment, employment figures and housing finance.

Posted in Australian Dollar, Enconomy, Financial goals, House prices, Inflation, Interest rate, Wealth | Comments Off

More Interest Rate Cuts

Monday, November 7th, 2011

I believe that we can expect a further 50 to 75bps of rate cuts I have found the RBA comments quite encouraging. In recognising that the non-mining sector of the economy will remain below trend and forecasting that inflation will be contained there appears to be ample scope for further rate cuts should that non-mining sector continue to underperform. However, the growth forecasts for the second half of 2011 are extremely upbeat and I would be surprised that, if those forecasts were achieved, there would be a need to cut rates.

I am of the view that the growth momentum will be considerably weaker than the Banks currently expect. That will be due to softer consumer spending, weaker business investment outside mining and ongoing difficulties in the housing market. All of those components argue the case for the RBA to reduce rates further.

Posted in Australian Dollar, Budget, Enconomy, Finance News, Financial goals, Home loan product, House prices, Inflation, Interest rate, Wealth | Comments Off

0.25% rate cut on Cup day – you can bet on it

Monday, October 10th, 2011

The Reserve Bank of Australia (RBA) interest rate form guide over the past five years has shown that it has moved to adjust the official cash rate 18 times since November 2006. Interestingly, over the past five years, there has been an interest rate adjustment on every Melbourne Cup day.

The Board noted that financial conditions have been easing somewhat, with interest rates for some housing and business loans declining slightly due to increased competition and the fall in some funding costs in financial markets. The exchange rate has also declined from the very high level of a few months go, while credit growth remains low and asset prices have declined.  My bet is interest rates to be cut by 0.25%

 

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Interest rate hike likely mid 2011

Monday, November 8th, 2010

For the second consecutive month, the RBA has surprised the market and myself with its policy decision, raising the cash rate 25bps to 4.75%.  I fundamentally believed that rates should be on hold until at least February due to the fragility of the consumer; housing and (non mining) business confidence.

My concern is that while the surge in mining investment is undoubted, other sectors of the economy which are domestically focussed – wholesale, retail, transport, communication, housing, non-mining related construction – will all be impacted by prospects for domestic spending, which particularly in the case of the consumer will be further slowed by this unexpected rate hike.

CBA raised its variable mortgage rate by 45bps. If that was to be followed with an across the board increase in mortgage rates materially beyond the 25bp RBA move, then I would only expect one more 25bp move from the RBA in this tightening cycle. That move would then be delayed until the June quarter of next year.

I expect growth to be slowing through the second half of 2011 – rates will be too high; fiscal policy will be tightening; and the Australian dollar will be comfortably above parity. The mining boom will be hampered by a shortage of skilled labour although the inflation spill over to wages from this very specific excess demand will be limited. A long period of steady rates will be necessary. The next, and final, round of rate hikes will need to wait until well into 2012.

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Strong AUD may pause interest rate rise

Monday, October 11th, 2010

The improvement in the Australian dollar could force the RBA to leave rates on hold once again when the Board meets next month.

The Australian dollar has almost caught up with the US dollar. Further appreciation from here could mean less rate rises may be needed next year as the improved exchange rate works to slow the economy.

Previously economists have predicted that the RBA could hike rates by 100 basis points throughout 2011.

I don’t think the strength of the Australian dollar would change the view that there will be another rate hike this year.

The appreciation of the AUD seen so far is not enough to change the forecast for a 25bp rate rise by end-year in my view.  I expect this hike to occur in November, but will be watching the CPI released October 27 and credit data released October 29 closely to confirm.

I still expect rates to rise by another 100 basis points over 2011, though further appreciation of the exchange rate could start to dampen that expectation. Of course if the exchange rate depreciated sharply from here, which would likely reflect a negative global shock, it would be necessary to reassess the interest rate forecasts.

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