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 MARKET REPORTS |
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Economics
RBA to raise rates to 7.0% at one of the next two meetings
November 7, 2007
Clifford Bennett, Chief Economist, Sonray Capital Markets
The Reserve Bank of Australia today raised rates 25 points to 6.75%.
The pressures building in the economy suggests another rate hike will
quickly follow at one of the next two meetings. The immediate areas of
impact are in the political arena, and in the currency.
This is perhaps the most widely expected rate hike we have seen. Despite
this, there will still be a boost to the Australian dollar, while having limited
impact on equity markets. Both Australian equity markets and the Australian
dollar are now driven more by robust Asian and global growth, than central
bank policy. For both the outlook remains upbeat, as long as reasonably
important medium term support at 6,500 holds, and for the AUD .9080.
Equities could move higher from here toward 6,950 in coming months.
The Australian dollar had not fully priced in the rate hike simply because it
was so strongly anticipated. An unexpected ‘no change' outcome would have
generated a savage sell off short term. The probability was low, but the
move could have been large. So the market now continues it’s already bullish
tone post the RBA decision, and could move as high as 95 cents over the next
week or two.
The US dollar remains under tremendous pressure, and just
keeps sliding lower as expected. In this environment and with still another
rate hike probably to come, the AUD is likely to be well supported into year
end. Our target of 93 has been achieved, and parity, US$1.00, remains our
target for 2008. For the moment bullish toward 95 96 cents.
The Australian dollar technically has significant support at .9080, but the
more probable range is 92 to 95 cents short term. Very immediate support in
the .9260 area may hold for continued fresh highs. An unexpected move
below .9260 may signal a wave of profit taking was setting in post the rate
hike, but favour continued fresh buying from overseas later today.
Key Forecasts:
- Fed will cut three times by 25 points in 2008.
- US economy will flirt with negative growth Q4, Q1, Q2.
- US equity markets remain at risk of sustained volatile consolidation.
- China to remain a powerhouse.
- Global economy to remain firm.
- Commodities volatile but bullish.
- Gold target at US$495, of US$800 to US$1100, now in range, bullish.
- US dollar to continue accelerated collapse next 6 months.
- Carry trade is old news and over, the USD/YEN decline to be savage.
- RBA to raise rates to 7.0% within two meetings.
- Australian dollar will continue to climb, 93 cent target achieved,
next parity $1.00, but in 2008.
- Global equity markets may suffer momentary drag from US market
weakness occasionally, but remain strong.
- Australian equities increasingly aligned to global growth.
Disclaimer: This recommendation has been issued on the basis that it is only for the information and exclusive use of the particular person to whom it is provided by Sonray Capital Markets Pty Ltd ABN 18 104 482 993, AFSL 231151. These recommendations are current as at the date of issue. Past performance is no guarantee or reliable indication of future results. Trading in derivatives may involve a high degree of risk and significant loss, and is appropriate only for persons who can assume risk of loss in excess of funds deposited. This recommendation is of the nature of general information only and must not in any way be construed or relied upon as legal, financial or professional advice. No consideration has been given or will be given to the individual investment objectives, financial situation or needs of any particular person. The decision to invest or trade and the method selected is a personal decision and involves an inherent level of risk, and you must undertake your own investigations and obtain your own advice regarding the suitability of any investment for your circumstances. Although the information in this recommendation has been obtained from sources considered and believed to be both reliable and accurate no responsibility is accepted for any opinion expressed or for any error or omission that may have occurred herein.
More articles from this week's CompareShares newsletter:
Economics: Wolf, wolf!
Rates outlook: RBA to raise rates to 7.0% at one of the next two meetings
Rates: RBA ups interest rates to 11-year high
Rate rise impact: Households 'should rethink budgets'
Trading: Buy the rumour, sell the fact
Investing: Why investors shouldn’t trust their own judgement
Forex: Hitchhiking on the carry trade
Commodities: Global commodities bull flexes its muscles
Please note that CompareShares.com.au simply publishes analyst reports on this page. The publication of these reports does not in any way constitute a recommendation on the part of CompareShares.com.au. You should seek professional advice before making any investment decisions. |
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