Tim Hext News Today

The Reserve Bank should be alert to stubborn price pressures, it’s their job to be so, but they should not be alarmed, writes Pendal’s Tim Hext.

The Australian dollar and bonds were sent into a tailspin after hot US inflation figures prompted traders to price out the chance of some rate relief from the Reserve Bank in 2024.

RBA watchers commended governor Michele Bullock’s clear communication about quashing inflation at her first media conference. The market’s conviction was more fleeting.

A US official poured cold water on hopes of aggressive rate cuts as soon as March, leading traders to temper bets of eventual rate relief from the Reserve Bank too.

Bond markets are pricing more aggressive monetary easing in the US and Australia after the Federal Reserve flagged a peak in interest rates.

The Aussie jumped above US64¢ on speculation US rates have peaked and that the RBA will lift borrowing costs as early as next week.

Investors expect the Reserve Bank to lift the cash rate at least once more after the US central bank signalled another rate hike to defeat inflation.

The currency could tumble to US62¢ as the US economy outperforms, and China growth deteriorates. Investors give a 60pc chance of another RBA rate rise.

Some economists say there is a chance the economy contracted in January-March for the first time since the pandemic induced downturn in 2021.

The big four bank won’t rule out a much higher cash rate while worries over the US economy and possible debt default weigh on sentiment.