Comments from Westpac Chief Economist bill Evans on the Reserve Bank of Australia and AUD
On the Fed and the RBA:
- Gradual restoration of 'normalcy' in the US is likely to edge up Australian bond rates
- Although the pace will be dictated by relative movements in the short end of the curve
- We do not expect to see the Reserve Bank needing to raise Australia's overnight rate until the second half of 2017, by which time we expect the Federal funds rate to be around 2.0%
- The pace of Australia's adjustment to normalcy will therefore be slower than the US
On the Australian dollar:
- Another important 'side effect' of these interest rate movements will be the USD and the AUD. A 10% rise in the USD and an associated 10% fall in the AUD will relieve some pressure on the RBA to further lower Australia's overnight cash rate.
- In 2016, markets' focus on the Fed's path and its chances of restoring normalcy to policy and interest rates will dominate.
- For Australia that focus will be justified even though there will be limited implications for the RBA
WPAC are looking for further declines in AUD/USD through 2016.
As am I. Nothing huge, and plenty of range activity, but with a bias lower.