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RBA Reserve Bank Interest Rate Decision for November 2015?
Increase by 25 basis 1 (5.9%)
Hold cash rate steady at 2% 9 (52.9%)
Decrease by 25 basis points 7 (41.2%)
Total Votes: 17
RBA Reserve Bank Interest Rate Decision for November 2015?; Pressure is on the RBA to cut rates as commodity bloc sweats
Topic Started: 9 Oct 2015, 04:42 PM (6,315 Views)
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Pressure is on the RBA to cut rates as commodity bloc sweats

October 9, 2015, Vesna Poljak

Australia faces pressure to cut interest rates even if the domestic economy does not worsen, argues BNP Paribas' top foreign exchange strategist, because fellow commodity-bloc countries such as Norway and Canada are easing, risking leaving the Australian currency stranded atop its peers.

The Australian dollar has carved out new ground as a global middle-order currency after years of overachieving, joining Norway, Canada and New Zealand as Group of 10 economies that still command some yield, but are seeing this eroded through a reliance on rate cuts to stimulate slowing growth.

Populating the so-called bottom order are currencies such as the euro and Japanese yen, united by their ability to conduct monetary stimulus and rock bottom or negative interest rates.

Steven Saywell, who is BNP Paribas' global head of foreign exchange, says China has changed the game with its readiness to devalue the yuan, setting off a chain of events not just in currencies but across bonds, commodities and equities too. Atop the G10 world sits US dollar and sterling, because the United States and the United Kingdom are both entering tightening cycles.

Mr Saywell said that pressure on the Reserve Bank of Australia to cut interest rates would intensify because of expectations that Canada and Norway have more to do. Regardless of what happens in the domestic economy, the case for a "sympathy" rate cut from the RBA will strengthen in the eyes of foreign investors who see significant similarities across the commodity economies. Canada and Norway have battled lower energy prices, while New Zealand has suffered through the collapse in dairy prices.

"If everyone is easing around you and you don't ease, that's a default hike," Mr Saywell said. He downgraded his view on Australia back in August when the People's Bank of China devalued the yuan in the face of a rallying US dollar.

"We are more bearish," Mr Saywell said. "It's for all the commodity bloc. We think the renminbi is going to weaken and the Chinese will allow this to happen, this is going to put pressure on the commodity bloc generally and that includes Australia … I'd look at the RBA from a global perspective, not just what's going on here."

The RBA has crafted a slightly more upbeat narrative on the Australian economy of late, as housing construction booms and the risk of rising unemployment is contained. It kept rates on hold at 2 per cent this week and the consensus of Australian economists is still that 2 per cent is the bottom. A minority of local economists share the view that the RBA has to cut rates in 2016.

Mr Saywell argues that offshore observers of the Australian economy are not convinced it will be immune to the plight of other advanced commodity exporters. "The perception is really quite bearish," he said. "I would say the world does look at it as a bloc."

The course of global monetary policy for 2016 suggests that the battle for middle order currencies will be to avert a drop to the bottom order.

"Central banks that can ease are easing," Mr Saywell said.

As for the US and the UK, "the next move's a hike and it's coming soon. Our view here is the Fed goes in March, but the UK is the really interesting one. I would argue there's more pressure on the Bank of England to hike than the Fed.

"The reason for this is they have a big similarity and a big difference. The big similarity is they both have very sharp falls in unemployment, the big difference here is the US has not yet seen wage inflation come through. The UK has. This means that the clock is ticking for the Bank of England where it's not ticking for the Fed."

Markets are not pricing in any hike for the BoE in 2016. BNP's view is that not only will BoE governor Mark Carney have to hike next year, but he may have to do it as soon as the first quarter.

"This raises the question, could the Bank of England go before the Fed?"

Mr Saywell's optimistic expectations for sterling mean that, in Australian dollar terms, $2.15 is a good entry point to capitalise on a return to the long-term trend of sterling trading between $2 and $3. "As we go further and this cycle evolves, we could go back to $2.50," he added.

Against the US dollar, and if commodity prices stay the same, the Australian dollar should finish 2015 at US68¢. If there is a 20 per cent drop in commodity prices that points to the Australian dollar at US62.5¢.

Read more: http://www.smh.com.au/business/markets/pressure-is-on-the-rba-to-cut-rates-as-commodity-bloc-sweats-20151008-gk4uqy.html
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stinkbug
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I doubt we'll see a rate cut this year. If we get another cut, maybe April next year or thereabouts.
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Trollie
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I think they don't want to drop more because the next cycle will see us over heat very quickly.
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Why a rate cut is suddenly on the cards

by Alan Mitchell

There is now a very good chance that the Reserve Bank will cut interest rates next month.

Westpac is unlikely to have increased its mortgage rates if it was not confident that the other banks would follow.

If they do, they probably will announce their intention to follow Westpac before the RBA's board meeting on Tuesday fortnight, and then announce their intention to pass on any official rate cut after the board meeting.

Arguably, there's a case for the RBA to cut its official cash rate even if the banks kept their mortgage rates below Westpac's, but it is dependent on macro-prudential regulation being able to keep a lid on lending to property investors in Sydney and Melbourne.

That would be a big call. The New Zealanders have had more experience with macro-prudential regulation than we have, but they are struggling to get control of the Auckland property market.

The case for a rate cut now turns entirely on the state of non-mining business investment.

If it were not for the Sydney and Melbourne property markets, the official cash rate undoubtedly would be lower. The official June quarter capital expenditure survey showed a welcome improvement in the non-mining investment outlook, but the survey's results were less bad rather than good.

The RBA's deputy governor, Philip Lowe, last month told the House of Representatives' economics committee that the start of a recovery in business investment was close.

"I think we are quite close to the point where we will see business investment start picking up – not dramatically, but a few more businesses will be prepared to say, 'Actually, given the improvement in fundamentals, I think I can now take the risk of committing to capital spending', " he told the committee.

But, to me, that just strengthens the case for a further rate cut.

A rate cut now would help push the dalliers over the line and, once they are investing, the pressure on their competitors to invest will increase. New capital embodies new technology that gives the owner a competitive edge.

What the RBA would want is to have its rate cut spur on business investment without starting a new surge in demand for real estate in Sydney and Melbourne.

It would want Westpac's competitors to raise their rates, and might not mind too much if none of the banks passed on its cut in the cash rate.

The banks might like that too, but the politicians are unlikely to wear it.

Read more: http://www.afr.com/news/economy/monetary-policy/why-a-rate-cut-is-suddenly-on-the-cards-20151015-gk9rq5
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Financial trends: Reserve Bank won't be bullied into interest rates cut
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As for rate cuts , the likelyhood of a 0.5% cut in one go is looking more likely. What and if the banks pass on is another story.

Sheer desperation to protect the housing market will see their hand forced. We can now see the banks are acting independantly of the rba, and where the rbs has been cutting rates, the banks have been incressing them.

The housing bubble has now popped, we now have record amounts of building completions coming onto the market and building jobs are set to peak and then start declining next year. Will start to get very interesting once construction jobs peak and then start declining some time next year. Jobs will then be declining further with still near record amounts of property still coming online.

Prices and rents are already falling and we are only just getting warmed up here.

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Banks ponder next game with interest
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CPI: Inflation rises less than expected in September quarter

October 28, 2015, Stephen Cauchi

Australian inflation rose 0.5 per cent in the September quarter of 2015, 0.2 percentage points less than expected, which has drastically boosted the chances for a rate cut next week.

The Australian dollar fell over half a US cent on the news, from US71.90¢ to US71.30¢, following the release of the Australian Bureau of Statistics data on Wednesday morning.

The result puts new pressure on the Reserve Bank of Australia to cut the official cash rate at its Melbourne Cup Day meeting in an effort to fire up the economy.

Economists had been expecting a rise in the consumer price index of 0.7 per cent for the quarter, according to Bloomberg.

The result means that CPI rose 1.5 per cent through the year to the September quarter 2015, instead of the 1.7 per cent that economists had tipped.

Economists believe the lower-than-expected result increases the likelihood the Reserve Bank will cut interest rates soon.

According to Citi, there had been a 60 per cent chance of a 25 basis point cut before the end of the year before the September quarter result was published. That has now increased to an 80 per cent chance of a cut.

The chance of a rate cut next week have gone from 28 per cent to 52 per cent, according to Citi.

Commsec chief economist Craig James said inflation was "well and truly under control.

"Underlying inflation remains locked at the low end of the 2-3 per cent target band. Overall, the Reserve Bank may need to trim its inflation forecasts. And that puts another rate cut on the table."

AMP Capital chief economist Shane Oliver characterised the inflation results as "weak".

"I continue to expect the Reserve Bank to cut the cash rate by 0.25 per cent when it meets next week or, if not then, then sometime in the next few months," he said on Wednesday.

UBS said that "today's inflation solidly beat expectations to the downside, with core inflation at 0.25 per cent quarter-on-quarter, one of the two lowest outcomes in almost 20 years...there's little here to stop the Reserve Bank offsetting the recent regulatory inspired retail rate hikes when it meets next week."

Read more: http://www.smh.com.au/business/the-economy/cpi-inflation-rises-less-than-expected-in-september-quarter-20151027-gkkcys.html
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Still no more cuts this year.
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peter fraser
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Absolutely one more cut for 2015.

November or December - it matters little.

Any expressed market opinion is my own and is not to be taken as financial advice
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