Australian Bond Exchange Weekly Update
17th January 2025
Key points
- Aussie consumer confidence slides
- Unemployment rises
- AUD falls further
- Hot U.S. inflation remains a concern
Global Cash Rates & Inflation
- The Reserve Bank of Australia (RBA) Cash Rate now sits at 4.35%pa and the annual inflation rate in the year to November is 2.3%.
- The US cash rate (policy rate) is currently between 4.25%-4.50%pa and the annual inflation rate in the year to December is 2.9%.
- The Bank of England Bank Rate currently sits at 4.75%pa to fight an inflation rate of 2.6% in the year to November.
- The European Central Bank Cash Rate (deposit facility) is 3.0%pa, to fight an annual inflation rate of 2.2% in the year to November.
Aussie Consumer Confidence Slides
Australian consumer sentiment declined again in January, with the Westpac-Melbourne Institute Consumer Sentiment Index slipping by 0.7% in January, settling at 92.1, following a 2% decline in December.
While concerns are less pessimistic overall compared to a year ago, worries over family/personal finances and rising unemployment continue to weigh heavily on the index.
Overall, the data highlights that pessimism is continuing to persist into 2025 despite the promise of looming interest rate cuts and easing inflation.
The softer data sharpens the likelihood of a potential February rate cut from the Reserve Bank of Australia, with short-term money market futures currently ascribing a circa 70% chance of a cut.
Unemployment Rises
Australia’s unemployment rate rose in December to 4%, reflecting the broader impacts of a slowing economy amid elevated interest rates.
This increase signals ongoing challenges in the labour market as businesses navigate higher borrowing costs and subdued consumer spending.
AUD Falls Further
On Monday, the Australian dollar slipped to 61.44 US cents, marking a steep 9% decline against the US dollar over the past three months—a sharp drop from levels above 69 US cents in late September.
From an economic standpoint, the weakening currency could push up import costs and fuel inflation, potentially compelling the Reserve Bank of Australia to hold the official cash rate steady at 4.35% p.a. during its February board meeting. However, financial markets are currently anticipating a rate cut.
Fluctuations in foreign exchange rates can introduce added complexity to investing in international financial markets.
To address this, the Australian Bond Exchange is able to offer investors AUD securities linked to global names like Jaguar Land Rover, Macy’s, Barclays Bank, and others.
This approach allows investors to obtain exposure to renowned global companies while investing in and receiving regular income in Australian Dollars, therefore, avoiding uncertainties related to foreign exchange fluctuations.
Hot U.S. Inflation Remains a Concern
The U.S. Consumer Price Index rose to 2.9% in December, recording its third consecutive increase after inflation hit a low of 2.4% in September. Meanwhile, core inflation, which excludes volatile items, eased slightly to 3.2%.
While rising headline CPI suggests persistent price pressures, the moderation in core inflation may create room for additional rate cuts from the Federal Reserve.
Next Week
- Second inauguration of Donald Trump
- Australian business confidence
- Japanese inflation data
- Bank of Japan interest rate
*Data accurate as at 17.01.2025
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