Rate cuts expected
There's no need to add to the breathless stock market commentary this week, except to note that obviously stock market indices have moved very quickly to the downside, with another 4¼ per cent decline for the Aussie index today.
But Australia has got some firepower, which should keep us out of recession.
The Aussie dollar briefly dropped to under 60 US cents, a pretty sharp drop from nearly 64 US cents in mid-March, so that's the first thing.
With crude oil prices also crashing to under $60/barrel - and China's trade diversion likely to be dumping a surplus of goods onto consumers at deflationary prices - Aussie inflation expectations have already dropped to the lowest level since October 2022.
And so secondly, interest rate expectations have also shifted down significantly, with a jumbo 50 basis points interest rate cut almost fully priced in for next month, and five interest rate cuts in total priced in for this year (which would take the cash rate target down to 2.85 per cent, if it transpires).
Obviously this would be stimulatory for the property market, except to the extent we still have a 3 percentage points lending assessment buffer in place to protect against...I guess, rising interest rates?
Australia is also fortunate to have relatively low government debt, so there's plenty firepower there too if it's required, which is the third thing in our favour.
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