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Weekly Economic Commentary

Weekly Economic Commentary

Categories: General

The combination of the European Central Bank beginning its Quantitative Easing program, and the US Federal Reserve moving closer to raising the cash rate, is driving the US dollar higher (and the Australian dollar lower). This is also driving equities lower and surprisingly, also pushing bond yields lower.

Despite the increased talk of a US rate rise by mid-year, our market continues to factor in almost two further rate cuts by the RBA over 2015.

The question marks over the recovery in non-mining investment, the soft labour market and below trend pace of growth continue to suggest that another rate cut is likely. Imbalances in the housing market must be continuing to weigh on the minds of the RBA Board members as are the noted rising prices of other assets, including shares and commercial property. While a full rate cut remains 100% priced in by May, the market is currently pricing in a 50% probability of a rate cut at the next meeting in April.

Source: Rural Bank

 

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