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Australian dollar braces for another rate cut
Published on 27.02.2015 10:46

The Australian dollar is trading lower today after a round of positive news from the US yesterday as well as weak local capital expenditure figures released earlier today.

AT 5.36pm (AEDT) the Aussie dollar was trading at US77.91c down from US77.98c in yesterday’s trade

Durable goods orders in the US rose for the first time in three months to a seasonally adjusted 2.8% well above analysts’ expectations of a 0.6% rise amid signs that the manufacturing sector may be stabilizing.

“After months of weakness, business spending appears to be on somewhat firmer footing,” Sterne Agee Chief Economist Lindsey Piegza said in a note to clients.

Although the numbers were positive she noted,

“Quarters of inventory gains are likely to keep business investment under pressure.”                      

The odds of another interest rate hike from the Reserve bank of Australia increased yesterday after weak capital expenditure figures hit the market,

Figures from the Bureau of Statistics showed capital expenditure fell by 2.2% last quarter, to $37.5 billion much bigger than the expected 1.6% drop.

Expectations of an interest rate rise from the RBA rose above 50% after the announcement up from 38% before the data was released.

ANZ's co-head of Australian economics, Felicity Emmett noted that businesses are pessimistic at the moment and are hesitant about investing further in the economy which is why the RBA needs to cut rates further,

"The ongoing weakness in the outlook will provide further confirmation to the [Reserve] Bank that the economy needs further stimulus," she said

"We continue to expect another near term RBA rate cut, most probably at the March meeting."


Andrew Masters

Analyst

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