Australian consumers suggest the RBA won’t be following the BoC anytime soon; and that Fed Funds should be closer to the RBA cash rate. One stark difference between Australia and Canada is the ‘happiness’ of Canadians (the high level of Canadian consumer sentiment) versus ‘not-so-happy’ Australians (Figure 1). In Figure 2 we plot the difference between the two series versus the ‘gap’ between the respective central bank policy rates. As the chart shows, the happiness of Canadians versus the glumness of Australians suggests that the BoC could tighten quite a bit more before the RBA gets going. Staying with Canada for a one more chart before moving to the US, in Figure 3 we update our relative unemployment and interest rate chart. Here the recent tightening by the BoC versus the firmly unchanged RBA is consistent with the narrowing unemployment rate gap between the two economies. In Figure 4 we plot relative consumer sentiment between Australia and the United States versus the ‘gap’ between the RBA cash rate and Fed Funds. In contrast to relative front end pricing (but consistent with our own directional views on the spread), Figure 4 suggests that the gap between Fed Funds and the RBA cash rate could narrow a little further.
Go ahead and hike and watch the world’s most unhappy consumers bunker.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
