21 hours ago
US dollar collapse sparks rate cut hopes
A 'couple of storm fronts coming out of the US' has seen the Australian dollar soar in recent weeks, adding further pressure on the RBA to cut interest rates.
Australia's dollar hit an eight month high against the US dollar on the back of greenback having its worst start to a year since 1973.
A host of economic policies, which is adding to a budget deficit already running at 7 per cent of GDP, has investors in the US dollar fearing it will be unable to pay its money back.
Webull securities Australia chief executive Rob Talevski said the RBA will be closely watching the fallout from the latest Trump development.
'We have a couple of storm fronts coming out of the US in the scene of the big beautiful bill but also a depreciating US dollar and questions of the independence of the Fed.
'This obviously has ramifications for the rest of the world and one the RBA will be taking note of.
'Ultimately, the RBA will be cautious, but for the short-term there's plenty of reasons for the RBA to cut in July,' he said.
DRAG ON THE AUSSIE ECONOMY
While a rising Aussie dollar against the US is good for travellers and those buying from overseas, it could have a massive impact on the Australian economy.
Australia's three major sectors are raw materials exports, tourism and international education at universities which all come under pressure with a rising Australian dollar. The Australian dollar is jumping on the back of this. NewsWire / Nicholas Eagar Credit: NCA NewsWire
While conceding a couple of rate cuts won't alone solve Australia's economic problems, Mr Taleski says it adds to a chance of a rate cut
'Obviously the Australian dollar is a commodity dollar and that is the sector that will be impacted.
'We've already seen a slowdown in tourism and international education with a strengthening Aussie dollar likely to harm us.
'It is definitely something the RBA will be monitoring closely.
According to Mr Talevski combined the falls in mining revenues, tourism and education will see the Australian economy stall over the next 12-months.
NED-9175-Australia's GDP
Unemployment Figures
He also opines this adds more pressure on the RBA which would be wise to consider the mounting risk that a falling US-dollar has on the global economy.
'Brand USA has been an impeccable defence in the face of mounting economic challenges in recent decades – sustaining global investor trust throughout the massive post-GFC monetary expansion and a deteriorating fiscal trajectory is not a luxury that would be afforded to any other country on earth,' he said.
Mr Talevski said the RBA acting a bit quicker and cutting rates in July could help with some of the pain from a higher Australian dollar.
'If we look back and analyse the RBA historically, the main criticism is that they are very slow to react whether it is increasing or decreasing monetary policy.'
'Information flows really quickly whether it is good or bad so reactions from that need to be a lot quicker than we've seen the RBA perform.
BIG BEAUTIFUL BILL
The latest storm facing the US dollar US President Donald Trump's passing his signature bill through the US House of Representatives by four votes on Friday overnight.
Dubbed the 'big beautiful bill' will do a host of things including fund a crackdown on immigration, pass his 2017 tax cuts, no more taxes on tips, cut credits or clean energy and EVs, state and local tax deductions as well as cut social safety net programs.
Republicans said the legislation would lower taxes for Americans across the income spectrum and will help spur on economic growth.
Critics say it gives the top 1 per cent of US households with incomes of more than $917,000 will get a $66,000 tax cut or about 2.4 per cent of their income.
Going along with the bill will be cut to medicaid and food stamps meant for lower income earners.
Overall the tax cuts will add $US3.4 trillion to the national debt between 2025 to 2034, adding to the US current $36.2 trillion national debt according to the nonpartisan Congressional Budget Office.
Mr Trump cheered the passing of the big beautiful bill on Truth Social.
'One of the most consequential Bills ever. The USA is the 'HOTTEST' Country in the World, by far!!!' Mr Trump wrote.
AMP chief economist Shane Oliver said the economic impact of this bill will be ambiguous.
'On the one hand the tax cuts likely provide a supply side boost to the economy, partly offsetting the negative supply side impact of the tariffs,' he wrote in his economic note.
'It may provide some near-term stimulus via the front loading of tax cuts but again this is at least partly offset by the tariffs.
'And with the income tax cuts being skewed to the rich (who don't change their spending much) and the spending cuts skewed to low-income earners it may mean that it could act as a drag on growth.'
But over the longer-term Dr Oliver conceded it will add further pressure on the federal debt levels.
