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Weekly Economic Commentary

Weekly Economic Commentary

Categories: General, Commodities, General

What a difference it makes when oil falls below $30 a barrel. Negativity crept back into markets and spooked investors early last week, sending them back to the safe haven of government bonds at the expense of equities. Even an 8% rebound in the oil price and a rally in commodities more generally late in the week failed to bring back market confidence as investors remained risk adverse.

It’s interesting to note that over the past two years, and despite a 20% fall in the Australian dollar, Australian consumers have only seen a 60 cent (38%) decline in the petrol price at the bowser, even though the price of oil has fallen by 68% over that time. While we have just recently seen the price of a litre of fuel fall below $1.00, albeit just briefly, the true price, even allowing for the currency devaluation, should be close to 60 cents a litre.

petrol price comparison

Despite no move by the RBA last week, markets are still of the view that further monetary policy easing is likely to be required later this year as the stimulus from residential construction activity and the depreciation in the Aussie fades. The RBA has signalled the labour market and global financial market volatility as key areas to watch, while inflation expectations appear to have been downgraded. The futures market still has one full rate cut factored in by August this year and a terminal (low) cash rate of 1.65% (chart below).

cash rate graph

Source: Rural Bank

 

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