It’s been a big week for Australian market participants and a generally disappointing week from a data perspective. The headline was the latest quarterly GDP data which was weaker than expected with economic growth up only 0.3% over the quarter and more importantly only up 2.8% annually (well below the RBA target of 3.5%). This has prompted a sharp fall in market interest rate expectations with the futures market no longer pricing in a rate hike from the RBA next year.
As was widely expected, the RBA left the official cash rate unchanged at 1.5% last week for the twenty-sixth consecutive meeting and by retaining the key phrase that it expects any further progress on inflation and unemployment to be gradual, the RBA signalled that it’s not ready to hike rates anytime soon. As the RBA doesn’t meet in January, this means the official cash rate has now remained unchanged for two years and four months, a new record.
Despite all the data released here last week, the main focus once again was in offshore markets where equities took another bath and investors flocked to the safety of the US dollar and government bonds – the AUD falling over one cent to be trading once again just above 72 cents. Along with the usual concerns over US-China trade negotiations (or lack thereof) traders have scaled back expectations on the number of US rate hikes by the Federal Reserve on the back of weakening global growth, soft US economic data and heightened market volatility.