Markets look to US rate cut

Following a surge in inflation in the US, all eyes will be on the Federal Open Markets Committee (FOMC) meeting later tonight, with the markets predicting an announcement of a tightening bias, if not a rise in US interest rates.

The markets have already accepted the fact that the Federal Reserve will move to a tightening bias in light of the jump in the CPI, and as such, we have seen a significant jump in the Australian ten-year bond market, which has moved to over six per cent, from 5.73 per cent on Friday.

This has followed a fairly sustained rise on the money market, and we are starting to see it flow through to fixed housing rates. The National Australia Bank, St George, NRMA, and GIO have all raised their fixed rates in the last couple of days.

However, it is worth noting that most analysts had already assumed that the next movement would be upwards. After three cuts at the end of last year, totalling 75 basis points, it was always doubtful that the US Fed would cut rates any further.