Australia in Focus : Timing the Inevitable Cut to Catch Up With Singapore
I note that Australian yields have dipped below Singapore interest rates (not bonds) in the 4-7 year tenors and this has not happened since the Asian crisis because Australian bonds have, on average, delivered over 2% over Singapore rates and this is due to 1. higher Singapore rates and 2. historical lows in Australian bond yields.
The Australian economy remains resilient with economic data still outperforming expectations and the ASX 200 has broken above pre-Lehman levels.
It does look like rate cut effectiveness will wane from here but it remains difficult to justify not cutting rates again in the backdrop of the global central banks race to deflect the wall of money soon to gush from Europe.
China’s surprise 0.25% cut this weekend will do no favours for the markets, I suspect, and diminish business confidence further on fears of her slowdown which is bad news for Australia if we consider that China consumes more than half of iron ore produced globally.
That said, we have the RBA coming up on the 3rd of March at 1130 am SG time.
With market shorts in AUD growing and trying to the record set in 2013, I now fear that we shall have no choice but to sell into any reprieve rally should the RBA delay the “inevitable” cut.
The case continues to mount against Australia, be it the weather and the El Nino droughts or the hurricanes, the commodity story and China, their frothy real estate market and their Big 4 banks recording a 7 year low in profits.
But luckily, the case does not look too promising for the rest of the world as well and it sounds like I could be talking about Canada too.
Leaving with the indicative bond prices.