Aussie retail banks are getting ahead of the Reserve Bank of Australia and are raising fixed lending rates as financial markets price in an interest-rate rise this week.
Major financial institutions are already starting to anticipate a rate hike from the central bank on Wednesday and have marginally shifted fixed lending rates.
Since last week ANZ has moved the one to five-year fixed rate up 0.1 per cent, while ING also raised its three to five-year products by the same amount.
NAB added an extra 2 to 7 basis points to its fixed rates and BankWest and Bank of Queensland have moved higher.
The increases were ordered after the three-year money market rates rallied 18 basis points over the past month on interest rate expectations.
Aussie dollar soars to 10-year highMeanwhile, the Australian dollar has reached a 10-year high as domestic financial markets raise expectations that a stronger economic outlook will prompt the Reserve Bank to tighten monetary policy today.
The prospect of the central bank lifting the cash rate to 6.5 per cent has soared to 65 per cent, after higher retail sales numbers and building approvals spiked sharply.
The 0.9 per cent monthly increase in national spending was interpreted as the possible trigger for the central bank to adjust rates when it meets today.
The dollar shot up following the news and last night was trading at US81.45c, just off its intraday high. The dollar's level has prompted some strategists to extend their forecasts as to how long the currency can stay high.
Overnight, the dollar traded between a low of $US0.8134 and a high of $US0.8180.
BT chief economist Chris Caton said the Reserve Bank would be concerned that higher spending, coupled with greater credit borrowing, would lift inflation.
"The news adds to the impression that the Australian economy is still travelling quite well," Dr Caton said, "although it is not clear to what extent one should allow one's view to be affected by a freak rise in multi-unit dwelling approvals."
Stocks could take a hitThe share prices of the major banks were weaker on the market yesterday, in anticipation of the interest rate rise and the implication it would have for borrowing levels.
The concerns about a possible trade stoush between China and the US injected a fresh bout of nerves into the Australian stock market.
Grange Securities chief economist Stephen Roberts said the share market, at the current heights, was susceptible to potentially negative news from around the world.
"It is a risk to global economic growth," Mr Roberts said of the US situation.
"At the moment it is no more than that."
Source: The Australian
