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Commodities weakness could see rates cut

Weakening commodity prices are continuing to be a drag on the Australian economy, investors have been warned, which may result in even further interest rate cuts.

In a note to investors, Fiducian’s investment manager Conrad Burge said that feeble commodity prices were contributing to an "ongoing decline" in Australia’s terms of trade (TOT).

Mr Burge said the March quarter had seen Australia’s TOT fall by 2 per cent, following 2015’s decline of 12 per cent.

The impact of this, said Mr Burge, was that the "real purchasing power of income generated by domestic production" contracted over the year to the end of March.

Mr Burge added that the Reserve Bank of Australia may need to lower interest rates as a result of this, to lower the Australian dollar and increase the nation’s competitiveness on an international level.

The RBA is meeting today, and the outcome of the meeting – including whether the cash rate will move or remain on hold – will be announced at 2.30pm AEST.

Additionally, Mr Burge noted that between 1 January and 29 June, the Australian share market fell 3 per cent, though major share markets seem to be recovering after the shock caused by the result of the UK referendum.

 

Commodities weakness could see rates cut
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