The tides are turning. Previously those who had forecasted a further interest rate cut in May would have found few opposition voices to this view. The National Australia Bank has come forward as the first economics forecaster to predict the Reserve Bank of Australia will not cut the cash rate next month, after weighing up the impact of Wednesday’s surprisingly high inflation data.
NAB said today that it now expected ‘the board will hold the cash rate steady at 2.25% at the May 5 meeting.’
Other major forecasters have tempered their view that a rate cut in May was a sure thing, without actually backing down. But recent positive employment data may be enough to hold these rates as they are – dropping from 6.3% in January now to 6.1% in March.
This is why yesterday, when Sterling gained against all major currencies, the Australian Dollar was the only exception.
Even though it is still more likely there will be a rate cut than not, due to the trigger happy nature of the world’s Central Banks at the moment wanting to act ahead of any crisis, this revised confidence in the Australian economy will mean any Dollar weakness will be minimized. With the UK election now getting towards the final push, it seems Sterling weakness will likely outweight Dollar weakness, presenting excellent selling opportunities for those holding AUD in the weeks to come. Those with AUD to purchase should act sooner rather than later, as the knock on effects from the election could indeed be quite long term.
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