Market activity could spark further rate cuts

by 06 Jan 2014
 High levels of economic turbulence could spark further interest rate cuts in 2014.

The Australian dollar has fallen following speculation of further reductions in the US stimulus program, but economists warn this may not be enough for the RBA.

"Investors are divided on whether the RBA will ease again next year and until that uncertainty is lifted the Australian dollar could remain weak," BK Asset Management Managing Director Kathy Lien told the AAP.

"If Fed tapering fails to drive the Australian currency lower and the Australian economy continues to grow below trend due to rising unemployment and weak demand, the RBA could pull the trigger (and cut the cash rate)."

Should US activity continue to cause the Australian dollar to fall we should start to see higher business confidence, more investment in the economy and a “sustained recovery” in residential construction and property transaction volumes, HIA chief economist Harley Dale told Australian Broker late last year.
“It’s no secret that there’s a general hope within the Australian business community that we see a lower average dollar rate for 2014 than we have over the last few years, and news that the Fed’s tapering is underway should bolster the US dollar and therefore lead to some depreciation in the Australian dollar - so in general it’s a tick in the box.”