Market Expects RBA to Cut Interest Rates Next Week

Businessman analyzing investment charts at his workplace

Market’s had another good session overnight. The panic of August and September seems to be fading. Why is that, do you think?

John Hilrenrath from the Wall Street Journal provides the answer…

The chances of a Federal Reserve interest-rate increase in 2015 are diminishing amid new signs of anemic economic activity, a disappointing development for central bank officials who have been hoping to move this year after a prolonged period of easy-money policies.

Sentiment in the Aussie market is improving too. And for the same reason. The market expects the RBA to cut interest rates, possibly as soon as next week.

This is all part of the global currency wars. Lower interest rates mean a weaker currency, which is a way for countries to ‘steal’ demand from others.

But when the chief proponent of the currency war is the country with the world’s reserve currency — the US — it causes all sorts of problems. These problems unfold slowly and deceptively.  As Strategic Intelligence editor Jim Rickards explains in his essay today, currencies lose their mantle over many years, not in days or weeks. Jim writes:

the replacement of sterling by the dollar as the world’s leading reserve currency was a process that took 30 years, from 1914 to 1944.

Hmmm. That was a pretty eventful period, wasn’t it? Two world wars and an epic stock boom and bust, followed by the greatest economic depression seen in the modern world. It’s no coincidence that these events unfolded as the world entered a type of currency vacuum.

Keep this in mind as you read Jim’s essay today. We’re in the early stages of another global currency vacuum. What that will bring is anyone’s guess. But it won’t be pretty. To deal with this evolving investment environment, you need to evolve too.

That means doing things differently and being willing to try new approaches. What worked in the past won’t work in the future. For a start, you could do worse than to have Jim as your guide. Keep an eye out for his essays over the next week or so to get your thinking on the right track.



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Greg Canavan
Greg Canavan is the Managing Editor of The Daily Reckoning and is the foremost authority for retail investors on value investing in Australia. He is a former head of Australasian Research for an Australian asset-management group and has been a regular guest on CNBC, Sky Business’s The Perrett Report and Lateline Business. Greg is also the editor of Crisis & Opportunity, an investment publication designed to help investors profit from companies and stocks that are undervalued on the market. To follow Greg's financial world view more closely you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails. For more on Greg go here.

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