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Weekly Economic Commentary

Weekly Economic Commentary

Categories: General, General

Donald Trump’s inauguration as the 45th US President has been the focus over the last week, and it has finally happened. His speech included references to making every decision on trade, taxes, immigration and foreign affairs, all to benefit American workers and families. There was, however, little mention of intended policy steps.

It is extraordinary how little is known about what Trump intends to do in office. His fans await an epic shake-up of politics; his opponents warn of chaos and ruin. As Mr Trump assumes power, the world is on edge. From the Oval Office, presidents can do a modest amount of good, but sadly, they can also do immense harm. The only thing just about everyone agrees on is that Mr Trump will be an entirely new sort of president. The question is, what sort?

In a sign of where Trump’s policy priorities lie, after the inauguration parade his new administration immediately announced a loosening of rules linked to Obama-care, and it ordered a freeze on new regulation in order to reduce the ‘burden’ of government red tape. The new administration also revealed that it will pull out of the Trans-Pacific Partnership and on Monday will notify Canada and Mexico that it plans to renegotiate the North American Free Trade Agreement.

Locally, there is now around 10 basis points of cash rate tightening priced into the interest rate futures curve for 2017. While there is still a bearish tone to the market, especially with the US Federal Reserve likely to increase rates two or three times this year, we still have to be conscious that benign growth and inflation fundamentals remain a concern here in Australia as well as the unemployment rate slowly moving higher.

We have the release of the latest quarterly CPI data out this week and if the data prints on the low-side, talk of another RBA rate cut could once again gain momentum.

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Source: Rural Bank


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