Australian Bond Exchange Weekly Update
14th March 2025
Key Points
- Australian consumer confidence continues to strengthen.
- US inflation has slightly dropped to 2.8% in February
- The Bank of Canada cut interest rates by 25 basis points to 2.75%.
- China signals determination to achieve 5.0% GDP growth in 2025.
Global Cash Rates & Inflation
- Australia: The Reserve Bank of Australia (RBA) reduced its cash rate by 25 basis points to 4.10% per annum, while January’s annual inflation rate stands at 2.5% (trimmed mean: 2.8%).
- United States: The Federal Reserve’s cash rate remains between 4.25% – 4.50% per annum, with February inflation at 2.8%.
- United Kingdom: The Bank of England lowered its Bank Rate to 4.50% with January’s inflation rate standing at 3.0%.
- Eurozone: The European Central Bank’s (ECB) deposit facility rate remains at 2.50% per annum.
Australian Consumer Sentiment Sees a Strong Rebound
Consumer confidence in Australia posted a notable rise in March, continuing its gradual recovery from the lows of the past two years. While sentiment remains slightly pessimistic, improving financial conditions and easing cost-of-living pressures have provided a boost. The Reserve Bank of Australia’s (RBA) recent rate cut in February, alongside expectations of further easing, has contributed to greater optimism. Additionally, a more stable job market and strengthening household finances are supporting this upward trend.
US Inflation Holds Steady as the Fed Signals a Pause
The latest data from the US Bureau of Labor Statistics indicates that inflation remains relatively stable, with the annual Consumer Price Index (CPI) at 2.8% in February, a slight drop from January’s 3.0%. The core CPI, which excludes food and energy, increased by 0.2% on a month-to-month basis, signaling a slowdown from the previous month. Federal Reserve Chair Jerome Powell has indicated that interest rates are unlikely to change at the upcoming 18–19 March meeting, stating that there is no urgent need for action while the economy remains stable. However, he acknowledged heightened uncertainty about future economic conditions and their potential impact on consumer spending and investment.
Bank of Canada Lowers Interest Rates Amid Trade Concerns
The Bank of Canada has reduced its key interest rate by 25 basis points to 2.75% as economic challenges linked to trade tensions with the US start to weigh on business confidence. Governor Tiff Macklem highlighted that while the Canadian economy showed strong growth early in the year, uncertainties surrounding tariffs and trade disputes have negatively impacted investment and hiring. Manufacturing businesses, in particular, have reported weaker sales expectations, leading policymakers to take pre-emptive action to support economic stability.
China Reinforces Its Commitment to 5.0% GDP Growth in 2025
Chinese authorities remain steadfast in their goal of achieving 5.0% economic growth in 2025, despite facing challenges such as weakening domestic confidence and slower employment growth. Premier Li Qiang’s recent speech at the National People’s Congress underscored the government’s determination to maintain economic momentum, though no major new policy initiatives were announced. The Chinese leadership continues to push back against external economic pressures, including ongoing geopolitical tensions, and is expected to implement further domestic stimulus measures to sustain growth.
The move is expected to drive long-term growth but may also reshape European fiscal policy, given Germany’s influence within the EU.
Potential Breakthrough in Ukraine Peace Talks Sparks Market Interest
There are growing signs that a potential peace deal between Ukraine and Russia may be on the horizon. Market speculation has intensified as investors look for opportunities in Russian debt, an asset that has been largely off-limits since the 2022 invasion. London-based traders have been actively seeking dollar-denominated Russian bonds, particularly those issued by Gazprom, to meet demand from Middle Eastern investors.
Additionally, money managers are exploring derivatives-based investments in the Ruble, as these financial instruments do not directly involve Russian assets and are not currently subject to international sanctions. A resolution to the conflict could lead to a significant revaluation of these assets in global markets.
The move is expected to drive long-term growth but may also reshape European fiscal policy, given Germany’s influence within the EU.
Final Thoughts
The coming months will be critical in shaping the direction of global financial markets. The Federal Reserve’s next moves will be closely scrutinized, as investors look for any indication of when rate cuts might begin. While Powell has signaled a cautious approach, any unexpected inflation data could change the timeline. Similarly, Australia’s economic recovery will be watched closely to see if consumer confidence continues to improve and whether further RBA rate cuts are likely. The possibility of a Ukraine peace deal could also have significant market implications, especially if investors continue to bet on Russian assets. Lastly, the trajectory of U.S.-EU trade relations and China’s economic performance will be key factors in determining global market stability.
*Data accurate as at 14.03.2025
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