Photo: The White House, Public domain, via Wikimedia Commons
The United States and Great Britain's new trade deal could impact the Reserve Bank of Australia (RBA) decision-making process at its meeting on monetary policy later this month, some say.
The two countries revealed the deal Thursday US time, or overnight Down Under, marking the first major trade agreement by the United States since US President Donald Trump announced sweeping tariffs last month. While the deal primarily affects the US and UK economies, its ripple effects are expected to influence global markets, including Australia's interest rates and property sector.
Market players say the recent agreement could create a more stable global environment, making the RBA less likely to aggressively cut rates throughout the year.
"The news over at night is clearly encouraging, and we've seen a positive reaction by the market," Madeline Dunk, an economist at ANZ, told Australian Broker. "The need for a strong policy response might not be there as much, particularly if this is a sign that looking ahead things are going to be a little more settled than what they've been recently.
"[The agreement] sets the scene for more of these trade negotiations to come through," the economist continued. "That's of course, going to be positive news. And for Australia, it means that, I think in many ways, the RBA has no need to rush in terms of easing policy further."
Tasmania-based economist Saul Eslake agreed that the US-UK deal could help encourage negotiation talks between the US and Australia.
"Australia would be looking for a similar outcome to that which the UK has got," he said. "But frankly, I don't think it's all that good an outcome. Bringing that back to Australia, I suppose the message is that we can't expect to get exempted from the 10% reciprocal tariff either, even though we run a deficit with the United States. In Trump's mind, we can't be cheating."
Meanwhile, ANZ is expecting the central bank will cut the official cash rate by 25 basis points at its meeting later this month. In addition, the major anticipates two more 25 basis point reductions, at the July and August meetings, bringing the OCR down to 3.35%.
"I think that the news that we're hearing about the US and UK really probably supports that view," Dunk said. "Given that the global environment does seem a bit more settled than what it was back in early April, for example, around when those Liberation Day announcements came out. I don't think there is a need for them to cut 50 basis points at that meeting in a couple of weeks, unless things really deteriorate from here. Because if you think about the local environment, it still looks pretty good. And that quarterly inflation data that we had out for Q1, that doesn't give the RBA any need to rush [with rate cuts.]"
Any rate cuts would be welcome news to mortgage holders and investors alike, many of whom have been navigating inflationary pressures and rising costs of living in recent months. Many were dismayed in April when the RBA decided to hold rates at 4.10%, after chopping off a few percentage points in February. Further rate cuts would undoubtedly create more market momentum.
"If Investors feel a bit more confident, there's a chance that we do see a bit more demand creep into the market," Dunk said. "So there is a chance that you do see demand lift. But it's really going to be wait and see how things evolve at the moment, because we know it's still quite volatile times.
