The Fed and RBA are marching in lockstep on rates, according to the bond market. But traders can’t work out which economy will break under the pressure first.
The US Federal Reserve has its hiking boots on again, with the world’s most important central bank joining the Reserve Bank of Australia in lifting the cash rate.
And the clear message, which the market has accepted, is that there is still some way to go before there is any chance rates will go down.
But what do rising interest rates in the United States mean for Australian investors ahead of an expected increase in the RBA cash rate this month?
The numbers reveal a fair amount of scepticism over whether the two central banks can put the brakes on inflation, as they are trying to do.
The Australian dollar weakened against the greenback on Thursday as the interest rate differential investors could earn over the short run narrowed.
The current US70.9¢ level is lower than the recent peak of US72¢ on September 9.
But it is well up from the US66¢ level a year ago when the Fed was preparing to cut the cash rate from its 4 per cent setting while pressure was mounting on the RBA to reverse course on cuts and instead lift.
This has proved a drag on the returns of big superannuation funds that have significant exposure to US dollar assets.
The Fed’s overnight move and subsequent communication will not have changed the RBA’s thinking about the need to act on inflation by raising rates.
It will be harder to justify anything other than an expected cash rate rise to 4.6 per cent when the board meets on September 28-29.
Source: https://www.afr.com/markets/debt-markets/what-the-us-fed-raising-rates-means-for-australia-20260917-p60y3p