TD Securities Expects A Reactive August Rate Hike

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By Terry Hughes

Given the recent trend in key indicators, TD Securities’ chief strategist Stephen Koukoulas says "you don’t have to be Ian Macfarlane to realise that higher interest rates are needed."

However, Koukoulas feels a July hike is unlikely as the Reserve Bank of Australia (RBA) may be waiting to see Q2 consumer price index (CPI) growth figures, as well as June employment data and to ascertain exactly what kind of impact the July 1 income tax cuts will have before raising rates.

All this leads Koukoulas to the conclusion that a pre-emptive July hike is unlikely and to favour the probability of a "reactive" August shift north.

This rise in rates will be made even more likely if the US Fed lifts rates on June 30, and is poised to lift again on August 8, and if the ECB also lifts rates and the BoJ moves closer to ending its zero interest rate policy, he says.

This could be positive for the Australian dollar, with the strategist flagging that its "surprising softness" could unwind.

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