RBA interest rate cuts – more to come?

Today’s statement by the RBA Governor is, as usual, short and a very useful read for Aussie currency and share traders

You can read the statement by Clicking Here 

2 Sentences in this statement stand out. I’ve copied them below and the emphasis added is mine

Looking ahead, the peak in resource investment is likely to occur next year, and may be at a lower level than earlier expected. As this peak approaches it will be important that the forecast strengthening in some other components of demand starts to occur.

For much of the commodity boom, Australian monetary policy has operated on the basis that some slack in other parts of the economy was needed to allow room for demand pressures created by resource investment.

However, when circumstances change central banks and traders need to change their outlook. The sentences above indicate that the bank will now be more concerned to ensure that the domestic economy is growing at trend capacity.

This in turn makes the Australian economy far more like other developed world economies. Most of these have significantly lower interest rates than ours.

As usual much depends on China. But unless our terms of trade turn around or mining companies again ramp up plans for large scale infrastructure investments, the RBA will be targeting a stronger domestic economy.  I reckon this tilts probabilities in favour of further rate cuts – possibly several

Cheers

Ric

About Ric Spooner

Over 30 years market experience - professional trader, broker, director
This entry was posted in Commodity, Forex, Market, Shares, Stocks, Trading and tagged , , , , , . Bookmark the permalink.

3 Responses to RBA interest rate cuts – more to come?

  1. Ric, I tend to agree with your comments. Assuming we get some cuts, you would assume the Aussie dollar will fall and our markets would rally, right?
    looking at the daily chart, I am getting a fib cluster at 4467.5 which coincides with strong resistance for the Australia 200 index on the weekly and daily chart. What are your thoughts for the Australia 200 in the very near term? Do you mind posting the elliot wave count for the daily/weekly Aussie 200? Thanks

    • Ric Spooner says:

      Hi Mostafa,

      Yes an outlook for further interest rate cuts would be a bearish factor for the Aussie I reckon. Interest rate expectations tend on average to be the single most influential driver of exchange rates.

      With stocks it can depend. The early stages of central bank rate cutting can often be associated with bear markets for stocks. This is because central banks are cutting rates in response to deteriorating economic conditions. In these stages cutting rates from high or average to a bit lower doesn’t often have too much impact on consumer behaviour. In the later stages of the rate cutting cycle, stocks rally as markets begin to anticipate economic improvement “turbo charged” by rates that are by then well below average. At the moment, stocks also seem to be getting some support from investors chasing yield with the possibility of further declines in bank term deposits etc.
      Personally, I agree there is significant resistance for the Aussie 200 in the general region of 4500. This includes trend line and fibonacci levels. Wouldn’t be hard to imagine the market backing off this but a clean break above this area would look bullish.
      I hope this helps
      Cheers
      Ric

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