This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Locally, the focus has been in the latest capital expenditure numbers, which have seen the swaps market flare up a bit. Earlier this month, the swaps market was pointing to a 70% chance of a March rate cut but this had since dropped to around 30%.
Following today’s data, this number has since popped back up to around 55%. At the same time, the majority of economists expect the RBA to back up the February rate cut with another one in March, taking the official rate down to 2%.
The headline print showed a 2.2% decline in private capital expenditure quarter-on-quarter when the market was expecting it down 1.7%. Perhaps the most significant thing from the reading was the first estimate for intended 2015/2016 capital expenditure. This reading came in at $109.8 billion which was below expectations of around $119 billion.
Declines for both mining and non-mining investment means the economy is not quite responding to the last rate cut cycle in the way they would have wanted it to. The RBA would have wanted non-mining investment to respond to rate cuts but the fact it has not and, given that’s the direction the central bank has been wanting to head, then more is likely to be needed to support the economy.
Whether this rate cut will come to fruition next week though remains to be seen. After having squeezed higher in the past couple of sessions, AUD/USD retreated on the back of the release.
