Will interest rates rise in the near future or won’t they … that’s the million dollar question and one we have mulled over a lot – even as recently as last week we were contemplating what the futures market had to say about the probability of the Reserve Bank raising the cash rate and banks following suit with hikes in home loan interest rates. Now let’s throw another variable into the mix: the value of the Australian dollar.
This week the press have been talking about the Australian dollar equalling the American dollar in value or perhaps even surpassing it. This has a whole lot of implications – it makes it a great time for us Aussies to travel overseas or go shopping online on American websites, but at the same time makes it a hard time for Australian exporters when their products appear more expensive, and also for the tourism industry when it becomes increasingly expensive for foreign tourists to spend time on our fair shores.
But it also has an impact on the likelihood of interest rate rises for home loans. If the Australian dollar continues to head towards parity – some experts are saying it will be one on one with the American dollar by early next year – this will keep inflation low and that is likely to lead the Reserve Bank to a decision to keep the cash rate steady – or possibly even cut it slightly. The catch is that before this impact is felt, the Australian dollar would need to remain equal in value to the American dollar (or greater in value, for the first time in history!) for what experts call “an extended period of time”. So don’t go rushing out yet to spend that money you’ve been saving up in case of more interest rate hikes – nothing’s guaranteed yet.