The RBA is aggressively cutting the cash rate in the face of falling house prices and potentially Australia's first technical recession in 28 years.
As rates are cut the interest on Aussie bonds also fall causing investors to flee Aussie bonds in search of safer higher yielding bonds like US treasuries. This in turn puts downwards pressure on the Aussie Dollar and is potentially going to push the Aussie down through decade long support with nothing below us until we hit 60 US cents.
The RBA is effectively sacrificing the Aussie dollar to try and prop up house prices and force the population into even more debt (Australia already has the HIGHEST private debt to GDP ratio in the WORLD). A quick look through history at countries that choose the path of a weaker currency is scattered with 3rd world economies. A weaker currency is never the solution no matter how tempting, but for the Aussies the only other path is a recession and property market collapse if the RBA doesn't cut. So, given that trying to save the economy by sacrificing the Aussie dollar is the politically expedient thing to do, it will be done.
Expect interest rates in Australia to fall to 0.5% if not lower, and the Aussie dollar to fall off a cliff. If these rate cuts somehow manage to stop the property market from falling (Not even a probable guarantee) Aussies might be able to sell their home for more than they paid, but when they travel overseas with the profits they will only be able to afford half the things they used to. People will say "why are hotels so expensive overseas? Last time I was here it was $200 per night now its $500 per night!" without even realizing its the Aussie dollar that's falling not hotel prices rising. This is the story of how every third world country started their decline into poverty, monetary mismanagement.
In my humble opinion the RBA's rate cuts will not be enough to save the property market simply because they are starting the easing cycle from historically low levels, meaning there's no room to stimulate before they hit the zero lower bound (0.0%). Not only will we end up in a deep recession with a crashing property market, we will also end up with a weakening currency making anything to do with overseas far more expensive, from imports to holidays and everything inbetween, adding even more pain to the coming recession.
As rates are cut the interest on Aussie bonds also fall causing investors to flee Aussie bonds in search of safer higher yielding bonds like US treasuries. This in turn puts downwards pressure on the Aussie Dollar and is potentially going to push the Aussie down through decade long support with nothing below us until we hit 60 US cents.
The RBA is effectively sacrificing the Aussie dollar to try and prop up house prices and force the population into even more debt (Australia already has the HIGHEST private debt to GDP ratio in the WORLD). A quick look through history at countries that choose the path of a weaker currency is scattered with 3rd world economies. A weaker currency is never the solution no matter how tempting, but for the Aussies the only other path is a recession and property market collapse if the RBA doesn't cut. So, given that trying to save the economy by sacrificing the Aussie dollar is the politically expedient thing to do, it will be done.
Expect interest rates in Australia to fall to 0.5% if not lower, and the Aussie dollar to fall off a cliff. If these rate cuts somehow manage to stop the property market from falling (Not even a probable guarantee) Aussies might be able to sell their home for more than they paid, but when they travel overseas with the profits they will only be able to afford half the things they used to. People will say "why are hotels so expensive overseas? Last time I was here it was $200 per night now its $500 per night!" without even realizing its the Aussie dollar that's falling not hotel prices rising. This is the story of how every third world country started their decline into poverty, monetary mismanagement.
In my humble opinion the RBA's rate cuts will not be enough to save the property market simply because they are starting the easing cycle from historically low levels, meaning there's no room to stimulate before they hit the zero lower bound (0.0%). Not only will we end up in a deep recession with a crashing property market, we will also end up with a weakening currency making anything to do with overseas far more expensive, from imports to holidays and everything inbetween, adding even more pain to the coming recession.
