A day after the US Federal Reserve held the interest rate steady ignoring US President Donald Trump’s demand, the Australian dollar fell below US70¢. Earlier, market predicted that the probability of the 25 basis points rate cut by the Fed by the end of the year is over 100 per cent, but now the possibility has been reduced to 65 per cent.
The gold prices reduced in the international market post the comments by the U.S. Federal Reserve Chairman Jerome Powell on the rate cut. Most of the gold miners traded on a negative note on the Australian Stock Exchange as the gold prices dropped.
As the possibility of rate cut eases, the dollar and bond yields improved, and the global equity markets declined on Thursday. The major indices closed red on Wall Street while the dollar index strengthened against the basket of major currencies. The energy shares dropped by more than 1% as the oil prices plunged.
The Australian share market also closed lower after the Fed pushed back rate cut anticipations. The S&P/ASX200 closed lower at 6,338.40 points, down by 0.6% or 37.49 points on Thursday.
In the second half of the year, the Federal Reserve may cut interest rates as the US manufacturing sector reported a further decline last month. The Fed may decide to cut interest rate to prevent a recession.
Recently, the Australian Bureau of Statistics released the data on inflation in which the indicator missed estimates with a steady headline consumer price index (CPI) in the March Quarter. The disappointing inflation increased speculations over Reserve Bank of Australia (RBA) cutting the interest rates in the near future.
The chief of National Australia Bank, Philip Chronican has cautioned that the likely rate cut by RBA would marginally help the economy and would result in reducing bank margins and profits. With a rate cut, banks would lose a lot of the deposit side of the business as many of its deposit accounts are already paying zero interest.
Macquarie Group has anticipated the 25 basis points rate cut by the Reserve Bank of Australia in its meeting next week. The Group’s expectation of rate cut is due to the slow growth in the economy and the weaker inflation. According to the Group, the gross domestic product growth had dropped in the past six months due to the weaker performance of the housing market.
CoreLogic Inc. announced its hedonic home value index recently. The index demonstrated a fall in housing prices across all capital cities of Australia except Canberra. The most significant property markets of Australia, Melbourne and Sydney witnessed a fall of 0.6 per cent and 0.7 per cent respectively in April.
A few days back, National Australia Bank Ltd (ASX: NAB) performed an analysis on housing prices in Australia. The analysts anticipated a further fall in property values in Sydney and Melbourne in the future. The expectation of further fall arose due to higher house price to earnings multiples in the Sydney and Melbourne markets.
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