It was a positive week for global equities. The US share market hit new record highs, while the ASX continued to grind higher. The Australian stock market is at its highest level since its GFC-induced collapse in September 2008. Global bonds eased over the week, but overseas central bank stimulus continues to exert downward pressure on yields. The Aussie dollar traded lower over the week and on Friday was trading at an 11-month low against the USD. The RBA will welcome an easing in the dollar.
The RBA cut the cash rate by 0.25bps to 2.75% at its May meeting. The meeting was “live” with the market pricing the odds at roughly 50/50 of a rate cut prior to the announcement. The RBA has routinely noted, in 2013, that a favourable inflation outlook provided scope to ease policy should that be necessary to support demand. In its May statement, the RBA noted that it “decided to use some of that scope … to encourage sustainable growth in the economy”. So it appears that the RBA sees some residual ability to cut rates again. In its quarterly Statement on Monetary Policy, the central bank downgraded its inflation forecasts to close to 2% through the year (the bottom of its 2-3% target band).
Click here to read the full report: Economic Research
Commonwealth Bank