Attention Turns to RBA on Tuesday

The Australian sharemarket should enjoy a positive start to the week before investors’ attention turns to an expected interest rate cut by the Reserve Bank.  Stocks will likely open higher on Monday following a sharp rise on the US market on Friday, with the Dow Jones Industrial Average gaining more than one per cent or 183.54 points to 18,024.06.

All eyes will be on the Reserve Bank of Australia board meeting on Tuesday, with 12 of the 15 economists surveyed by AAP expecting the RBA to cut the cash rate to a new record low of two per cent.  Economists predict it will be a finely-balanced decision.

“The case for another cut remains strong: the outlook for business investment remains weak, commodity prices are softer than expected, the Australian dollar remains too high and is at risk of rebounding further and inflation is benign,” AMP Capital chief economist Shane Oliver said.

“However, the RBA may continue to fret about housing leverage and Sydney home price gains, and the bounce in the iron ore price over the last few weeks has eased the pressure on the RBA a bit.  “So while our base case is for a cut, another month on hold would not be surprising.”