Bonds/Interest Rates

The latest Westpac/MI Monthly Inflation Gauge shows inflation remains a problem in the Australian economy, which is expected to keep the RBA’s focus on interest rates.

This week features an avalanche of data both here and abroad, and a few rate decisions.

ANZ is expecting inflation to hit 5% in Australia, the Aussie to pass through US dollar parity, and the RBA to increase the cash rate not once, but twice, in 2008.

US personal expenditure numbers for the first quarter will make for interesting reading this week along with a revised first quarter GDP. Credit demand will be key for Australia.

If the Aussie is really heading to parity, get ready for some significant profit downgrades from exporters and companies deriving a large percentage of profits in the US.

The Dow fell another 200 points last night as oil hit US$134 and the Fed signalled it would not be cutting rates any further.

Unlike the US and British banks, European banks have been deathly quiet about their balance sheets. And a European economic downturn appears inevitable.

Labour’s first federal Budget has had a positive impact on consumer confidence, it would seem, but Westpac economists point out it’s still looking gloomy.

Soaring oil and subsequently rising inflation finally took its toll on Wall Street last night. The Dow fell 200 points.

The market might like to think the RBA is done raising interest rates, but this is not necessarily the consensus view inside the RBA board.