RBA Forced to chase 90 day rate - downwards

The RBA cut the Cash Rate Target to 3.5% today after a 0.5% cut last month - chasing the 90 day rate downwards. The RBA should have passed on a full 0.5% cut, however, after the 0.5% cut last month they would be feeling some political pressure to avoid such a move.

If the 90 day rate remains unchanged or falls before the next RBA meeting, expect another 0.25% cut - historically the RBA keeps the cash rate lagging the 90 bill rate by about 0.15% on average - evidence the RBA are simply following market rates and not setting them.

RBA to lower rates

The RBA will need to lower rates when they next meet now that the 90 day bill rate has fallen below the cash rate target. The 90 day rate is 4.08% versus the cash rate target of 4.25% and a 0.25% reduction is now justified.

XAO Short Term Update

The wave count has been updated slightly to take into consideration an 'anomaly' - well, I did say triangles have a habit for tricking. It appears a triangle has unfolded as a wave within the larger triangle itself - thus delaying the commencement of  wave 'd' down. Time wise, wave 'c' can be a long wave within triangles.

Also, RBA Interest rates are on this week - cash rate target is currently at 4.25% and 90 day bill rate has come down to 4.3% (4.45% at start of March). I doubt the RBA will lower rates this month (but there's a slight possibility) since the cash rate target is still under the 90 day bill rate - not by much though. The average gap is 0.15%.

Interest Rates - RBA asleep at the wheel?

The RBA must have struggled to put verbiage together this week in order to make their very important interest rate decision. Regurgitating views we already know: the usual waffle on Europe we've seen for months now in all the financial media; Food Prices are unwinding (Thanks to Coles supermarket - lucky they slapped together a discount advertising campaign otherwise the RBA minutes would be a sentence shorter), unemployment has risen; etc etc.

Is anyone awake at the RBA and looked out the window? The verbiage is wonderful, but a cursory glance at the 90 day bill rate shows that is has changed very little over the last few months. The 90 day rate is at 4.39% v's the RBA Cash rate target of  4.25%. The RBA "cash rate target" lag of the 90 day bill rate is on average 0.15%, and guess what - the RBA lag is 0.14% as of Thursday, almost bang on average.

Next month I'll get out of bed a little earlier and put up the updated charts of the 90 day v's the RBA cash rate target - and make a way out guess on what the decision will be.

Interest Rates

The RBA announced today a drop of it's cash rate target to 4.25% - inline with the expectations from my June post on Australian Interest rates.

The 90 day bill rate has been steadily dropping down to 4.56% (as of yesterday), hence the RBA decision to continue to lag the 90 day rate is valid since there is no meeting next month and the global economy continues to weaken.

However, longer term, rates are expected to drive higher - perhaps much higher.

Australian Interest Rates - lower

Outlined in this post in June was an anticipation of lower interest rates for the medium term. From the RBA web site today....

"At its meeting today, the Board decided to lower the cash rate by 25 basis points to 4.5 per cent, effective 2 November 2011"

I'm yet to check the 90 day cash rate upon typing this post, but I wonder if it has dropped prior to the RBA decision, thus forcing the RBA to lower it's cash rate target. Will check later :-)

Interest Rates - Consolidating

The 90 day bill rate is currently at 4.81% and has been trending sideways for several months. There's been talk in the MSM for the case to lower rates by the RBA due to poor economic conditions, this may happen as discussed here but ultimately higher long term rates are on the horizon.

One thing for certain is more adjectives and nouns from the RBA will no doubt be forthcoming to justify some type of decision that's already predetermined by the 90 day bill rate.

Australian Interest Rates - July

The last RBA board decision left interest rates on hold (surprise surprise) and going by the text of the meeting minutes I can't understand how anyone could make a decision one way or the other based on the adjectives and nouns provided. If I were to jumble up the meeting minutes from the last several months and ask you to select the appropriate meeting minutes for the correct month - you'd have no hope.

Alternatively anyone could spend 5 mins reviewing the 90 day bill rate and making a well educated decision as to the RBAs cash rate target - as the cash rate target simply lags the 90 day bill rate. The 90 bill rate is still around 5% (4.98 as of June 30th) and is little changed since beginning of June shown here. For the upcoming July decision, there is no logic for the RBA to change the cash rate target currently at 4.75%.

Long Term Interest Rates - Higher rates to come?

Discussed in this post was a possible ending of a long term trend in Australian interest rates. Started in 1982, a long term decline of interest rates appears to have completed as a very obvious elliott wave pattern. On the horizon are higher interest rates but after some medium term declines or sideways action that may last for many months.

This long term decline comprises of an Elliott Wave flat pattern: a 3-3-5 structure, thus a completed flat will have an A, B and a C wave with A & B having 3 waves and C with the standard 5 waves.

There is a difference between elliott waves seen in the stock market and what can be seen in interest rates and currency markets. Stock markets move up in waves of 5 and are an indication of progress where interest rates operate in waves of 3 over long periods of time. If they didn't, then conceivably interest rates would eventually reach 100% and higher.  Operating in 3 waves makes it very difficult to estimate long term trends as these 3 wave corrective patterns are the most difficult to predict due to their complexity and the range of many different types.

Therefore, it's usually easier to look for smaller 5 wave patterns within the larger corrective patterns, unless some very obvious pattern emerges - this seems to have now occurred.

Australian Interest Rates

The next RBA meeting is almost upon us and there will be the usual adjectives and complexities in describing the rationale for the pending decision on the target cash rate. The sideways movement in the 90 day rate for the last several months will probably see the RBA leave their cash rate target on 4.75%.

So where will interest rates go? Using Elliott Wave for interest rates is more complex since rates cannot be anticipated in waves of 5 (like the stock market) otherwise the rates would eventually be over 100%. Interest rates move in waves of 3 oscillating over many decades and I'm assuming a bottom has been reached on the chart below - since a 3 wave multi-decade decline that started in 1982 now looks complete as of March 2009.

This 90 day rate has now seen five small waves up and a correction needs to occur which may see slightly lower interest rates or more sideways depending on the depth of the correction. Longer term, higher rates are on the horizon.

Interest Rates Again

No surprise today - RBA has left the cash rate target unchanged. As per last post, the RBA cash rate target lags the 90 bill rate (only just).

Interest Rates - Appropriate, Stable, Surging, Consistent and Floods

You can't make this stuff up. Adjective 2.0 is close as I can summarise when reading the news from the Reserve Bank on interest rate decisions. It's the same old story - use complicated adjectives to justify interest rate decisions.

A 5 second glimpse is all it takes to see that the RBA rate will be adjusted (if needed) to slighlty lag the 90 day bill rate.

When will the financial media report the 90 day bill rate prior to the RBA monthly meeting on interest rates and make a best guess to the target cash rate? Too easy? Or perhaps too hard to compare charts? Probably the latter.

Interest Rates (Daily)

Orange Line = 90 day rate
Black Line = RBA Cash Rate Target

The pending RBA Interest Rate decision

It's that time again. Last month the RBA kept interest rates on "hold" even though there was a case to raise them based on the cash rate lagging the 90 day bill rate by almost 0.5%. Today, the 90 day bill rate hasn't much moved since the last RBA meeting and hence there is no case to adjust the Cash Rate Target.

As you can see in the chart below, there have been extended periods of time where the 90 day bill rate has remained range bound for up to 12 months at a time and the Cash Rate Target has remained unchanged during those periods too. This won't stop the MSM from squeezing out the usual hype on interest rates every month - instead of looking at the charts :-)

 

UPDATE:

The RBA increases rates today by 0.25%. The only logic in this decision was because the rise was delayed from last month due to the election - as a rate rise straight after the election would put undue pressure on the Government.

The RBA Cash Rate Target is now where it needs to be based on historic relationship with the 90 day bill rate as discussed in the previous RBA post.

Interest Rates - How the RBA doesn't influence the cash rates

It'll soon be that time again, and the usual hype around where interest rates are going will be in the MSM. For anyone who takes the time, they can download the Historic rate data from the RBA web site and determine for themselves where the RBA cash rate target is most likely heading. Have you ever wondered why the MSM don't publish comparison charts (like the one below) prior to the RBA interest rate decision? Simple: The media hype it up every month - hype and fear sells news, in addition nobody in the MSM wants to undermine the RBA.

The RBA insists that it influences the cash rate in the market, but I contend that it is the market that sets the interest rates and the RBA simply follows the trend (as best they can). Some folks even believe that the market "anticipates" the RBA rises in advance and hence that is why the target cash rate and 90 day bank bills are tied closely together. Gees, I'd like to know who these rate experts are and how they are almost 100% correct each and every time and what their predictions are for the next 12 months. Maybe they should swap jobs and predict stocks each day.

Seriously, a cursory look at the rate charts prior to a RBA rate "decision" will provide a good glimpse into what is the most likely outcome. As of the 29th Sept, the difference between the cash rate target and 90 Day bill rate is almost +0.5%. It's highly probable that the cash rate target will rise by 0.25% (unless politics gets in the way soon after the election). The average difference between these two rates over the long term is +0.1% and over the previous quarter is +0.3%. Since there is almost a 0.5% difference at the moment, then rationale suggests that a 0.25% rate increase is likely.



The daily chart below shows the RBA cash rate target lagging the 90 day bank bill rate.