Stronger US markets have set the Australian market up for a positive start to the week. However, any rally this morning is likely to be short of convincing. With US markets closed tonight, the possibility that recent selling momentum will resume before a corrective rally is properly established remains open.
US jobs data remains well short of levels that mandate action by the Fed. However, the job market remains good enough to allow the Fed to make its next rate hike if it sees fit. Job growth in the US over recent months has been good enough to accommodate the population growth and hold both the unemployment and underemployment rates steady. It remains the case that the Fed’s economic goals are close to being achieved. Unless there is a significant deterioration in this situation, a rate hike this year seems appropriate.
The RBA is unlikely to cut rates again until it has a chance to assess whether the Fed will lift rates this year and what impact that has on currency markets. However, this morning’s news of a sharp deterioration in the AIG services PMI bears watching. If continued, contracting conditions in the services industry with sluggish consumer demand may force the RBA’s hand over coming months