Don’t Count on The Reserve Bank of Australia Raising Rates

Despite the warm glow of a new round of QE from Europe, the price of Australia’s most important commodity continues to sink. It fell a massive 4.3% yesterday to $63.54 a tonne.

That’s because the outlook for China’s property construction sector is poor. The demand for iron ore is just not there. In a signs of things to come, Shanghai just abandoned its official economic growth target for 2015, suggesting China will no longer rely on the ‘growth at any cost’ method that was so bullish for iron ore in years past.

The poor outlook for iron ore has the market punting on the Reserve Bank of Australia cutting interest rates in Australia next week. After all, Canada put in a surprise rate cut last week due to the precipitous fall in the price of its major earner, oil. Apparently, that means Australia will surely do the same.

As I wrote last week though, I’m not so sure you’ll see an interest rate cut next week. Just because the market is desperate for one and thinks Glenn Stevens should join in the currency wars, doesn’t mean we’ll get one.

Up until now, all the language coming from Stevens suggests interest rates are on hold. He may change that wording next week, but to reduce rates ahead of a change in language would be an unusual move for Stevens.

Let’s wait and see…


Greg Canavan+
for Markets and Money

P.S. If you haven’t already seen my report on the one Aussie stock that I think will have a massive year this year, based in part on the benefits of a weaker Aussie dollar, click here.

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Greg Canavan
Greg Canavan is a contributing Editor of Markets and Money and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to Markets and Money for free here. If you’re already a Markets and Money subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Markets and Money emails. For more on Greg go here.

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