Several advanced economies have recorded improved conditions over the past year, but conditions have become more hard for a number of emerging market economies.
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With the global economy growing at a lower than average pace, the RBA has announced another historic cut to interest rates, following the previous historic low of 1.75% announced in May 2016.
The RBA, as expected, chopped 25 basis points off the rate, taking it to 1.5%, after an identical cut in May.
Despite some key Australian news and economic data releases on Tuesday that should have placed increased pressure on the Australian dollar, AUD/USD climbed significantly.
Mr Stevens pointed to recent data showing inflation was at a 17-year low and would probably stay low for some time, while low interest rates were making banks more willing to lend money, which was helping the economy.
“For us the real issue will be the environment in 2017 when the housing cycle will be in reverse; jobs growth may have cooled; global growth, particularly in this region, will have slowed further; and Australia’s interest rates may still be attractive to worldwide investors”, Evans said in a note.
Big four bank customers with variable rate home loans are set to lose hundreds of dollars annually after their lenders failed to pass on the full rate cut suggested by the RBA yesterday.
“Commodity prices are above recent lows, but this follows very substantial declines over the past couple of years”.
All this is perpetuating a negative feedback loop for lower prices in the consumer mindset, but questions remain if the RBA is best position to arrest falling inflation expectations as it begins to run out of ammunition.
“All this suggests that the likelihood of lower interest rates exacerbating risks in the housing market has diminished”.
He’s working under the shadow of a potential ratings downgrade and is committed to cutting the budget deficit to avoid being cast as the man who lost Australia’s AAA rating, with all the political damage that would inflict on his economic credibility.
What made the RBA act drastically was the very low inflation at 1 percent and a big slowdown in the housing market.
Opening Wrap: Against the yen, the dollar changed hands at 102.40 yen, near its three-week low hit on Friday after the Bank of Japan disappointed markets with a less aggressive than expected easing.
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While the Australian dollar rose against the US and the Canadian dollars, it fell against the yen, the euro and the NZ dollar. The benchmark 10-year JGB yield was up 9 basis points at minus 0.050 percent, touching its highest levels since early April.
