Odds of RBA rate cut on the rise as Aussie bushfires regenerate

Reuters reporting on the Australian bushfire crisis with authorities issuing new warnings and evacuation notices across southeast Australia on Thursday, as a return of hot weather, fanned huge bushfires threatening several towns and communities.

The economy is going to suffer. “The risk of there being broader macroeconomic spillovers this season are high given the scale of the fires,” said Katrina Ell, an economist at Moody’s Analytics.

Financial markets are now signalling Australia's central bank will likely cut official interest rates when it meets next month on 4th Feb as the race to zero gets underway. The shift in outlook reflecting concerns the devastating bushfires and increased geopolitical tensions in the Middle East could curtail economic activity in early 2020. According to Australian interbank futures, the implied probability of the Reserve Bank of Australia (RBA) cutting rates by 25 basis points on February 4 rose to as high as 65 per cent.

Reuters reports on fires

 A disaster level notice in large parts of Victoria state, already in place for the past week, was extended by 48 hours and people in danger zones were advised to leave if it was safe to do so.

“Don’t get complacent from the rain we have had recently,” Victoria Emergency Services Minister Lisa Neville said in a televised briefing, referring to several days of cool weather that has allowed firefighters to strengthen containment lines around blazes that have been burning for months.

“These fires are absolutely still moving, still growing in our landscape and they pose significant risk to communities,” Neville said.

FX implications

Given the damage concerns for the Aussie economy, AUD can be expected to remain under pressure. “Odds were already high that the RBA would cut interest rates at its next meeting. The fires increase those odds,” – Katrina Ell, an economist at Moody’s Analytics said.