Australian Bond Exchange Weekly Update
4th April 2025
Key Points
- Australia: The Reserve Bank of Australia (RBA) has kept the cash rate steady at 4.10% per annum. Inflation for February stands at 2.4%, with the trimmed mean at 2.7%.
- United States: The Federal Reserve maintained its cash rate within the range of 4.25% – 4.50% per annum. February’s inflation data is expected to show a 0.3% monthly rise, with an annual increase of 2.5%. Core inflation is projected to tick up to 2.7%.
- United Kingdom: The Bank of England (BoE) has held its Bank Rate at 4.50%. February’s inflation eased to 2.8%, down from 3.0% in January.
- Eurozone: The European Central Bank (ECB) kept its deposit facility rate unchanged at 2.50% per annum. Inflation in February moderated to 2.3%, compared to 2.5% in the previous month.
Market Insights
- US trade war causes market turmoil.
- RBA held cash rate steady at 4.10%.
- Annual growth in Australian Retail Sales slowing.
RBA held the cash rate steady at 4.10%
As expected, the RBA held the cash rate steady at 4.1% following the first meeting of the newly formed Monetary Policy Board. While the global picture has deteriorated since the last meeting, the RBA has not concluded that this will materially affect outcomes in Australia. It assesses that it is well-placed to respond to global developments should this be needed. The new Board remains focused on the domestic data flow. Inflation has tracked in line with the RBA’s February forecasts and on most measures is now inside the 2–3% target range. However, the Board is not entirely confident of further progress or that inflation will remain at the 2.5% target midpoint.
It will be seen what impact the US Trade War will have on the RBA’s thinking with the market suggesting that there will be a cut in cash rates at the next meeting.
US Trade Policies Drive Market Volatility
The ongoing trade tensions between the United States and key trading partners have led to increased volatility in financial markets. The imposition of new tariffs and restrictions has weighed on investor confidence, leading to a shift toward defensive assets.
The US 10-year Treasury yield, a key indicator of economic sentiment, has dropped from 4.8% earlier this year to around 4.00%, signalling increased risk aversion among investors. This decrease in yields signals that investors are flocking to safe-haven assets, such as government bonds and cash, in light of the increasing uncertainty surrounding the global economic outlook.
Annual Growth in Australian Retail Sales Slowing
Australian retail sales increased by 0.2% in February, following a 0.3% rise in January. While consumer spending remains positive, growth has moderated significantly compared to previous months.
According to the Australian Bureau of Statistics (ABS), the year-on-year growth rate slowed to 3.6% in February, compared to 3.8% in January and 4.6% in December. This signals a cooling trend in consumer spending, with potential implications for economic growth in the months ahead.
Breaking down the data:
- Essential goods (such as groceries and household essentials) continued to see stable demand.
- Discretionary spending (on items such as electronics, clothing, and dining) showed signs of softening.
- Retailers in sectors reliant on consumer confidence reported mixed results, with some seeing slower foot traffic and spending patterns.
Rising cost-of-living pressures, higher borrowing costs, and ongoing economic uncertainty may be contributing to more cautious spending behaviors. Economists will closely watch upcoming data releases to gauge whether this trend will continue.
Fiscal easing in China and Germany may offset some of the impact of higher US import tariffs. However, eurozone growth is expected to be weaker than previously forecasted. Fitch also warned that Mexico and Canada, given their trade exposure to the US, are likely to experience technical recessions, leading to downward revisions in their 2025 growth forecasts by 1.1 and 0.7 percentage points, respectively.
Market Outlook & Key Considerations
• Potential Interest Rate Cuts: With inflation stabilising and growth showing signs of slowing, some analysts predict that the RBA and other central banks will accelerate the easing of monetary policy.
• Geopolitical Risks: The impact of ongoing trade tensions and geopolitical uncertainty remains a key risk factor for global growth.
*Data accurate as at 4.04.2025
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