Get set for an August interest rate cut

 

The first two days of the week have provided a snap shot of what can only be seen as a resumption of soft economic data in Australia.

The number of job advertisements, as measured by ANZ, fell 1.2% in June to register the third straight month of decline.  Eye-balling the correlation between job ads and employment – with a 3 month lag – it looks like we are poised to see a period of falling employment over the next couple of months.  It also suggests the unemployment rate could tick towards 5.5% from the current 5.1% level.

The NAB business survey out today was similarly uninspiring.  While “business conditions” rose 3 points, they still registered minus 1 point to stay in the sluggish zone.  Business confidence dropped 1 point to minus 3.

These two indicators are soft enough to suggest the economy may well need a bit more policy stimulus in the not too distant future.  With the Budget tightening now in full swing, the world still as weak as water and the Australian dollar remaining over-valued, the onus remains on the RBA to be move policy to an easier setting.

A rate cut in August is odds on.  Or at least is should.  If the jobs report later this weak catches up with the ANZ job ads series and shows a drop in employment and a rise in the unemployment rate and the June quarter inflation data near the end of July confirm inflation at a fresh 13 year low, the RBA will be keen to edge official rates lower as it works to reinflate the economy.

The betting market has for August a 25 basis point rate cut at $2.80 with no change at $1.45.  From this distance to the next RBA meeting, my view is that those odds should be reversed – a rate cut is much more likely than no change.