Originally published by Rivkin Securities
With the US markets closed for a public holiday, it was fairly quiet for trading overnight. The FTSE 100 had a strong session, climbing almost 1% after several days of declines. The ASX 200 has come slightly off its highs in the past two days although it is still close to 10-year highs. Health Care has been the strongest sector so far this year, climbing 41% while telecommunication services is the weakest with a 10.8% decline.
Yesterday Australian retail sales disappointed, coming in flat compared to expectations for an 0.3% gain although this comes after three consecutive months of decent growth. Today the Reserve Bank of Australia (RBA) makes its interest rate decision for the month. As has been the case for the last two years, no change is expected and market watchers will simply be looking for clues as to when the next rate change will be. The key details to watch in today’s statement will be what impact, if any, the recent increase in mortgage rates by Westpac (AX:WBC), and the possibility that the other banks will follow, has on the thinking of the RBA board. Furthermore, the decline in average house prices nationwide may be a cause for concern for the board. On the other hand, the falling Australian dollar and a declining unemployment rate are positives for the economy that support the case for a rate hike.
The Australian dollar has broken down to a new 18-month low against the US dollar as the divergence in monetary policies between the two countries continues. With a high chance of a US rate hike this month and no rate changes for the foreseeable future in Australia, the pressure on the Australian dollar should continue. A decline below US$0.717 would represent a two-year low for the currency and trading in the last 24 hours saw it briefly touch this level before rebounding. The weaker Australian dollar will be seen as a positive by the RBA but only up until a point. If the currency breaks below $0.70 it is likely the board will start to become concerned about too weak a currency as these levels would be close to ten-year lows.
Data Releases:
- Australia Interest Rate Decision 2:30pm AEST