One of the themes which comes through in our household surveys is that many people are under financial pressure, but are holding out for interest rate cuts in the short term.
But America’s election outcome continues to reverberate across the globe.
Bond markets continue to push higher with the US 2 and 10 year moving up, a trend reflected on the Australian market too. With the 10 year up to 4.7% compared with 3.8% in the middle of September. The ASX 30 days cash rate futures is still trending down, but more slowly than recently.
Financial markets and economists have been consistently pushing back the timing of the first rate cut in Australia since 2022 because inflation has proved far more difficult to tame and the labour market has remained strong. Traders are now fully priced for a move in September next year.
But some reckon there is a much higher chance of no rate cut in 2025 that the market is pricing in.
The US dollar index, which measures the greenback against a basket of six currencies, climbed to a six-month high on Wednesday. The AUD was down to 65.25 cents against the USD.
A strong greenback is likely to stoke inflation in Australia because of higher prices of imported goods denominated in US dollars such as oil, complicating the RBA’s job to bring inflation down so that it can start lowering the cash rate.
While Trump’s policies will become more of a focus next year, for now, the RBA’s focal point is the Australian economy, where higher for longer is going to play out.
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