BlackRock Sees RBA Cutting Again, Risk of Further Aussie Decline

  • World's biggest fund manager says Aussie housing `fragile'
  • Swaps market currently pricing in just 40% chance of 2016 cut

BlackRock Inc. reckons the Reserve Bank of Australia will be forced to lower interest rates as challenges to the nation’s economy mount and there are risks that the currency will fall further.

While the central bank has indicated it’s reluctant to take the cash rate below an already record low 2 percent, the world’s biggest fund manager sees the “fragile” housing sector as a key concern as the country shifts away from its reliance on resource investment, according to Australian fixed-income head Stephen Miller.

There is a risk that rules to tighten home lending and mortgage rate increases by the major banks will have “an outsized impact on housing and household spending, prompting even further weakness in private final demand at the same time as the challenges facing the Chinese economy are mounting,” he said in an e-mail. “We expect that the RBA will cut rates again in 2016.”

Australia’s central bank has kept its benchmark unchanged since May as it gauges the impact of looser policy and a lower currency. While there are signs that low rates are gaining traction and the labor market has strengthened, RBA Governor Glenn Stevens has said policy makers have room to cut again if needed.

The swaps market was pricing in just a 40 percent probability of a quarter percentage point cut from the RBA in the next year, according to data compiled by Bloomberg as of 2 p.m. on Wednesday in Sydney. The currency bought 72.05 U.S. cents, 4.5 percent above the six-year low it reached in September.

The risks for the Australian dollar are “weighted toward the downside,” according to Miller. “It appears to have been impervious to recent weakness in commodity prices.”

Before it's here, it's on the Bloomberg Terminal.