Invest
Why the US cash rate reduction could force Australia’s hand
The Federal Reserve’s cutting of its funds rate for the third time in three months has undermined Australian central bank efforts to reduce the price of the Australian dollar.
Why the US cash rate reduction could force Australia’s hand
The Federal Reserve’s cutting of its funds rate for the third time in three months has undermined Australian central bank efforts to reduce the price of the Australian dollar.
The US Federal Reserve (the Fed) announced its reduction of its own rates by a further 25 basis points to a range of 1.5 to 1.75 per cent.
AMP Capital’s chief economist Shane Oliver said the Fed’s rate cuts are targeted at reducing the risk of a trade war, but could have a negative flow-on impact on the Australian economy.
“The Fed’s further easing along with stimulus elsewhere globally should help support global growth, which is good for Australia, [but] a concern for the RBA is that with the Fed easing, the interest rate gap between Australia and the US looks like it might be bottoming,” he said.
This has led to an increase in the Australian dollar, which moved up more than 3 per cent from its recent low following news out of the states of the cash rate reduction.
While this does make imports cheaper for domestic consumers, it also increases the cost of exports, which can have an impact on trade.
Reflecting on the global environment, Mr Oliver said he expects the Reserve Bank of Australia to follow the Fed and further ease monetary policy.
“[This] is another reason to expect further RBA monetary easing, despite recent signs that the RBA is not in a rush to ease despite another low inflation reading for the September quarter,” he said.
The chief economist believes the upcoming US presidential election could end the trade war, which would help ease the pressure on Australia to react.
Mr Oliver said it is likely that the Fed is “at or close to the bottom on rates”, adding that the recent “trade truce” between the US and China has a greater chance of success, given President Donald Trump’s desire to keep the US economy strong ahead of the 2020 presidential election.
As rates continue to fall, RBA governor Philip Lowe has reminded Australians to take advantage of the current record-low interest rates.
About the author
About the author
Cash
Tips to finding a middle ground between equities and term deposits
With record-low interest rates and a volatile sharemarket, mature Australians looking to protect their assets while maintaining their income are being driven to fixed-income products, an industry expe...Read more
Cash
What’s next for paper money?
How many times in the past week have you actually had to pull out your wallet to pay for something? And out of those times, did you actually go to use cash? ...Read more
Cash
Last rate day of the year revealed
The Reserve Bank of Australia has announced its decision on the official interest rate for December, following predictions of a hold. ...Read more
Cash
RBA hands down rate decision on cup day
The Reserve Bank of Australia has announced its decision on the official interest rate this month, following predictions of a potential cut to rates. ...Read more
Cash
RBA hands down rate decision for Budget day
The Reserve Bank of Australia has announced its decision on the official interest rate this month, following predictions of a potential cut to rates. ...Read more
Cash
New $100 banknote rollout a ‘big logistical exercise’
The Reserve Bank has announced a release date for its much-anticipated new $100 banknote. ...Read more
Cash
Big 4 banks forecast October rate cut
Two of Australia’s largest financial institutions believe the Reserve Bank of Australia will reduce rates on 6 October to help support the federal budget due out the same day. ...Read more
Cash
RBA open to new record-low rate
The Reserve Bank has flagged the possibility of a rate adjustment, albeit a small possibility, as the country recovers from the COVID-19 pandemic. ...Read more
Cash
Tips to finding a middle ground between equities and term deposits
With record-low interest rates and a volatile sharemarket, mature Australians looking to protect their assets while maintaining their income are being driven to fixed-income products, an industry expe...Read more
Cash
What’s next for paper money?
How many times in the past week have you actually had to pull out your wallet to pay for something? And out of those times, did you actually go to use cash? ...Read more
Cash
Last rate day of the year revealed
The Reserve Bank of Australia has announced its decision on the official interest rate for December, following predictions of a hold. ...Read more
Cash
RBA hands down rate decision on cup day
The Reserve Bank of Australia has announced its decision on the official interest rate this month, following predictions of a potential cut to rates. ...Read more
Cash
RBA hands down rate decision for Budget day
The Reserve Bank of Australia has announced its decision on the official interest rate this month, following predictions of a potential cut to rates. ...Read more
Cash
New $100 banknote rollout a ‘big logistical exercise’
The Reserve Bank has announced a release date for its much-anticipated new $100 banknote. ...Read more
Cash
Big 4 banks forecast October rate cut
Two of Australia’s largest financial institutions believe the Reserve Bank of Australia will reduce rates on 6 October to help support the federal budget due out the same day. ...Read more
Cash
RBA open to new record-low rate
The Reserve Bank has flagged the possibility of a rate adjustment, albeit a small possibility, as the country recovers from the COVID-19 pandemic. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
