The talk last week was all about a speech by US Federal Reserve chair Jerome Powell where he said that interest rates are just below neutral, a notable shift from comments in early October when he said the Fed was “a long way” from neutral. The comments sent global markets into a frenzy to unwind expectations of future US rate hikes.
As a result, equity markets rallied hard while the US dollar and long term yields fell.
The Aussie traded back above 73 cents but will be at the mercy of the latest US-China trade talks at the upcoming G20 meeting in Buenos Aires. Any amical solution (or, dare I say, trade war breakthrough) between Trump and Xi would see risk assets respond rather positively which is likely to boost the AUD but further tension would see the AUD once again fall.
Despite the change in stance by the US Federal Reserve with respect to future rate hikes (refer above), our official cash rate remains clearly on hold for now with the futures market not pricing in an RBA rate hike till early to mid-2020.
In other news, Prime Minister Scott Morrison announced last week that the Government’s next Budget would be released on 2nd April (more than a month ahead of the usual schedule) implying that the next Federal election will occur in the first half of May and that the Budget would confirm a return to surplus.
And over the weekend at the G20 summit, China and the US have agreed to take a 3-month time-out for additional tariffs in the hope of securing a broad trade agreement. The US said China will buy a "very substantial" amount of agricultural, energy, industrial and other products. US and China will begin negotiations on issues such as technology transfer, services and agriculture. If the two countries are unable to reach an agreement in 90 days, the planned US tariff lift from 10% to 25% will follow.