The first Reserve Bank Board meeting of the year takes place this Tuesday with no change to the official cash rate widely expected, but the RBA will most likely retain their mild easing bias to provide some cover for global downside risks. In addition, since the last RBA Board meeting in December, the Australian dollar has fallen by 3.5%, which would also provide some comfort to hold rates steady for now.
If the RBA Board was hoping for a quiet start to 2016, they would be disappointed given the year so far has been characterised by volatility and risk aversion in markets.
It doesn’t look as if the global easing cycle has ended just yet. Despite the US Federal Reserve raising rates in December for the first time in ten years, the European Central Bank has hinted that further “stimulus” is required and then, in a surprise move last Friday, the Bank of Japan cut rates into negative territory.
This surprise rate cut (to negative 0.1%) by the Bank of Japan triggered a fall in interest rates globally, a rise in the US dollar, and sharp rises in global equity markets over the weekend, so our market should also start with a solid rally this week.