Originally published by Rivkin Securities
Today the Reserve Bank of Australia (RBA) meets for its monthly interest rate decision. With the cash rate currently at a record low of 1.5%, the RBA is very hesitant to further reduce rates. No change in rates is expected at today’s meeting but some weak economic data points are providing a case for further cuts. On Wednesday, Australia’s GDP will be released and is expected to be dangerously close to a negative number. This would provide significant impetus for the RBA to further cut rates but also means a technical recession is possible. Furthermore, if the decline in house prices that started last month continues, the RBA might be less concerned about further stoking a housing bubble and more inclined to cut rates. On the other hand, although the Australian dollar rose to $US 0.7489 overnight, it has been weak in recent months which the RBA will view as providing some of the stimulus that a rate cut would otherwise provide.
The price of gold in Aussie dollars hit a six month high yesterday as a rising $US gold price and a weak Aussie dollar have propelled the price higher. Interestingly, despite the strong gold price, gold stocks have been lagging significantly indicating that the equity market may be sceptical about the sustainability of the gold price rally.
Despite the extension to the OPEC production cuts, the price of oil has again fallen overnight. WTI crude is now trading with a 47 handle and is well off the year to date highs in the low to mid 50’s. The relentless increase in US oil production appears to have the market worried that the OPEC cuts will be completely nullified by the increased US production.
The UK General election is scheduled to occur on Thursday and at this stage markets seem completely unconcerned about the event. Polls are suggesting a conservative victory that should lead to an orderly ‘hard Brexit’. Volatility in the sterling and the UK stock market has not increased in the lead up to the election which is a little surprising given the shock markets suffered when the UK referendum result was announced.
Data releases:
· Australian Current Account 11:30am AEDT
· RBA Cash Rate Decision and Statement 02:30pm AEDT