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Weekly Economic Commentary

Weekly Economic Commentary

Categories: General

Irrespective of whether weaker Chinese demand or the prospect of the US raising rates is the primary catalyst, what is becoming increasingly apparent is that commodity prices have been on the slide for some time. Gold prices are back to five-year lows and gold and oil prices have headed down sharply since the start of the month. The price of iron ore and whole milk powder are also down 12% and 26% respectively since the start of July.

This will no doubt put pressure on the economies of commodity-driven countries like Canada, New Zealand and Australia.

We saw Canada surprisingly cut rates a week ago and New Zealand cut rates last week, so that leaves Australia.

While recent data does not point to the need for further rate cuts, and recent RBA commentary and a speech from Governor Glenn Stevens highlighted a reluctance to ease policy further, the question of further rate cuts remains “on the table”. Financial markets continue to price in more than a 50% probability of another rate cut, virtually unchanged from a month ago (refer below).

Source: Rural Bank

 

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