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Weekly Economic Commentary

Weekly Economic Commentary

Categories: General

Since the “no move on rates” announcement from the US Federal Reserve, a number of US Fed board members (and also the RBA Governor Glenn Stevens) have publically reaffirmed their views that US interest rates are still likely be lifted this year. Analysts are currently left unable to move past the “when” debate and determine “what” will happen to markets once they do.

Our futures market is currently pricing a full rate cut by mid next year (chart below), backing off from levels reached late last month where a cut was priced in for as early as December.

In a surprise move, ANZ's economists last Thursday changed their view on rates, now saying that a stubbornly high unemployment rate will force the RBA to cut its official cash rate twice to a new low of 1.5%. Previously ANZ were in the “no further cuts” camp albeit with some downside risk, as economic growth gradually accelerated. ANZ now expects economic growth to be too slow to reduce spare capacity in the economy - including unemployment, partly because of a downgraded forecast for global economic growth. They add that pinpointing the timing of the rate cuts is tricky, but are pencilling in a reduction of 25 basis points in both February and May at this stage. They have also reduced their terminal currency forecast by 3 cents and expect the Australian Dollar to be at USD0.64 by the middle of 2016.

Source: Rural Bank

 

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