Australian Dollar and interest rate

Posted: July 27, 2016 in Uncategorized

The Australian Dollar has been stubbornly high in these months, as everybody was predicting a weakness. It even went up to 78 cents on the USD.

This situation has been created by the US Fed (which postponed rising rates), the commodity price-spike (but there is still build up of oversupply in the system) and the lack of cutting interest from the Australian Reserve Bank.

Now things are slowly starting to change as the RBA will probably cut rates between now and November, the Fed could be starting to be more hawkish and commodities prices are getting lower again.

This could push the AUD towards 70 cents. To go lower, we would need to see SP cutting the AAA rating due to the Budget Blow out (quite possible). This would tumble the AUD to 68/65 cents.

Interest rates.

Definitely there will be still a few cuts on the cards, but not lower than 1% as the RBA considers cutting to less than 1% ineffective (Quantitative Easing ,beyond that). Personally I think they will stop at 1.25%.

The big surprise for mortgage holders is that, as banks balance are under pressure due to new rules, we could have a few “out of cycle” rate hikes.

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