Global equity markets continued to climb in August, while bond prices rose, with the US 10-year interest rate falling by -0.15% over the month.
US economy
US employment data came in weaker than expected, causing a drop in 2-year interest rates and increasing prospects for Federal Reserve rate cuts. Continued signs of economic softness led markets to anticipate a 0.25% cut in September and another by year-end. The dismissal of a Federal Reserve Governor late in the month added volatility to interest rates and raised concerns about Fed independence.
Australian economy
The Reserve Bank of Australia (RBA) determined that recent economic data justified a reduction in interest rates, lowering them by -0.25% to 3.60%, as anticipated. The RBA continues to adopt a data-driven and cautious approach regarding the economic outlook. Market participants anticipate an additional rate cut by November.
NZ economy
The Reserve Bank of New Zealand (RBNZ) reduced the Official Cash Rate (OCR) by -0.25% to 3%, in line with expectations. The RBNZ provided updated economic forecasts, reflecting the weaker economy. The bank lowered its OCR projections and is now indicating the possibility of two additional cuts this cycle, compared to a previous likelihood of just one more cut.
This led to a decline in New Zealand interest rates, with 2-year rates down -0.30% and 5-year rates ending down -0.23%. The NZD ended the month little changed, up +0.05%.
Looking ahead
Global markets are closely watching the September Federal Reserve meeting, the UK fiscal situation and ongoing foreign trade relations.