The market and economists increasingly believe the Reserve Bank of Australia will cut rates in 2015 and that’s a big part of the reason why the Australian dollar finished the week near a four-year low.
Australian dollar at a four-year low
In the past 5 days, economists at Goldman Sachs, Deutsche Bank and Westpac all forecast the RBA will lower rates by 50 basis points in the year ahead to 2.00%. The swaps market isn’t quite as aggressive, pricing in 29 basis points of cuts in the OIS market.
Slumping commodity prices and concern that China’s economy is slowing are the chief reasons analysts see trouble. The RBA retained a neutral stance in its latest statement but economists are talking about rate cuts as soon May.
Yet there is no consensus that rate cuts are even coming at all with most economists still forecasting the RBA main rate will be at 2.50% at the end of 2015.
Rather than guessing what might happen next, the important takeaway for now may be that — either way — volatility in Australian dollar trading will remain high.
RBA gov Stevens believes a weaker AUD would be helpful