WEEKEND ECONOMIST: All smoke, no signal

Australia remains gripped by the high dollar and tight fiscal policy but markets have priced out prospects of rate cuts in the future, further distorting Australia's monetary policy outlook.

Markets have moved to effectively price out prospects for any more rate cuts in Australia. We believe such action is misplaced. Consider the results from the June quarter national accounts.  The report highlighted that growth in the Australian economy is slowing down. This is not only due to the peaking of expenditure in the mining sector, but also the lack of response of domestic demand, specifically consumer spending and non-mining business investment to the 225 basis points of rate cuts that the Reserve Bank has delivered since November 2011.  

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