The impact of oil complicates the outlook

• Markets and economies impacted simultaneously by oil price falls, Chinese policies and divergences in growth and monetary policy among the major economies, leading to significant volatility and uncertainty

• Net effect to date has been low inflation and interest rates, stronger US$, weakness in commodity prices and non-US$ currencies and lower unemployment in advanced economies

• It’s crucial whether the oil price weakness is supply or demand driven. The latter would be reflected in higher global unemployment and would suggest low inflation and bond yields for longer – the former suggests low inflation and bond yield effects are likely to be transitory as there would be a significant positive offset from consumer spending. That’s what NAB’s modelling and the literature suggests.

• Either way, in the near-term, there remains pressure on the $A, which we see trading in the US$0.66-0.70 region this year.

• The RBA left cash rates unchanged in February – as expected. The Bank is watching closely whether Australian employment growth continues and also whether the financial markets turbulence of recent times warns of weaker global and Australian demand.

For full analysis, download report:

• Australian Markets Weekly: 9 February 2016(PDF, 1MB)

For further FX, Interest rate and Commodities information visit nab.com.au/nabfinancialmarkets

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