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Weekly Economic Commentary

Weekly Economic Commentary

Categories: General, Commodities

There was a general easing of geopolitical tensionsover the week, with the absence of any new developments in Ukraine and Gaza being perceived as good news. This, along with some news from the US Federal Reserve and the Bank of England hinting that rates may rise sooner than expected, allowed a relatively solid rally in equity markets last week; while yields were higher (albeit from very low levels) and the US Dollar strengthened.

Despite comments from the RBA last week declaring that rates remain on hold; analysts continue to factor in the possibility of one more rate cut, although these expectations have wound back over the last month (refer chart below).

This (rate cut) view is based on the recent move down in longer term rates, which the market believes could be followed by a further cut in the cash rate, as well as the need to take action against the stubbornly high Australian Dollar.

For me, I still believe the RBA is worried about the impact that another rate cut would have on the already inflated housing market (in particular investment housing) and will therefore hold steady on rates for some time.

Thereafter, the cash rate will gradually increase, but not until the back end of next year.

Source: Rural Bank


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