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Lack of fiscal stimulus will force the RBA’s hand

The new Secretary to the Treasury endorsed the government’s hands-off approach to fiscal policy this week. We suspect the Australian government could increase spending significantly to support the economy without risking their AAA credit rating but we think they will prioritise the budget surplus for the sake of political appearances. Meanwhile, our US team now expects the Fed to cut rates twice this year, which could put upward pressure on the Australian dollar. Given the lack of fiscal stimulus and the continued decline in global rates the RBA will probably need to ease policy further in the coming year.

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