Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Tuesday, 5 May 2015

Interest rates to fall today?

Commodity prices weaker again

The Reserve Bank released its Commodities Index for the month of April yesterday.

Declines continue on a monthly average basis with the index off by another 2.6 per cent in the month to be 20.5 per cent lower over the past year.

The driver was once again another horrible decline in bulk commodity prices.

Given that the preliminary estimates are presented on a monthly average basis, it is true that we may see a decent rebound in May.

Nevertheless the bulk commodities index is down from above 160.4 in June 2011 to just 64.1 in April 2015, which is a spectacular decline on any measure.

Unfortunately the decline in the Aussie dollar has not really helped all that much, and the Reserve Bank has stated that it would like to see it lower, probably at closer to 70 US cents.

This means that interest rates may need to fall further.

The Commodities Index in Australian dollar terms declined by 2.6 per cent in May and by 14.4 per cent over the past year.

Rates decision

One of the most interesting data releases, International Trade in Goods and Services, will be released later this morning.

The above figures suggest that we can expect to see a severe impact on iron ore and coal FOB values within the monthly merchandise exports series.

On the positive side, there has been a strong rebound in tourism as the dollar weakens.

With inflation remaining well in check markets expect to see the cash rate cut to a record low of 2 per cent later today.