RBA Expected to Sit Despite Stronger A$

Economists expect the Reserve Bank of Australia to keep interest rates on hold this week, but some are still expecting a rate cut on federal budget day in May if rates stay on hold in the United States. A Fairfax Media survey of 12 senior bank and market economists found they were unanimous that the central bank will keep the official cash rate at a record low 2 per cent at its policy decision this week.

But about a quarter of economists still anticipate a 25-basis-point cut as early as May. At the heart of this call is the strength in the Australian dollar, which has risen 12 per cent off its six-year low of US68¢ in January to as high as US77¢ last week.

Its strength has come from improving commodity prices, better-than-expected local data and a lowering outlook for interest rate rises in the US. The market has all but ruled out the Federal Reserve raising rates at its April meeting, and some economists are tipping the dollar to continue to rise as high as US80¢.