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Bookie predicts 2017 end to record low interest rates

Tue, Dec 6, 4:44pm by Bren O'Brien

Record low interest rates may be set to continue into 2017, but one online bookmaker believes the run will end, pricing two rises in the cash rate in 2017 as a $2.90 chance.

Australia has enjoyed a long run of low interest rates and that continued on Tuesday when the Reserve Bank confirmed they would keep the cash rate on its currently level of 1.5 per cent for at least the next two months.

The bank said that while the global economic outlook was positive, growth wasn’t as strong as it needed be to change its monetary approach.

“Labour market conditions in the advanced economies have improved over the past year,” the statement by governor Philip Lowe said.

“Economic conditions in China have steadied, supported by growth in infrastructure and property construction, although medium-term risks to growth remain.”

However, Sportsbet believes that the era of record lows is set to end, pricing the next movement to be a raise at $1.75 with a drop in rates at $2.

The 12-month view from Sportsbet is that there will be multiple movements of rates in 2017. Two rate changes is priced as most likely at $2.90, while no movement is $3.

In terms of what the rate will look like in December 2017, Sportsbet has the range of 2.01 – 2.5% as a $2.75 favourite, while under 1.5% is $3.

A rate in the current range of 1.5% to 2% is considered a $4 chance.

However, while it believes the rate will rise, it is not predicting a change in February, with a no rate change at the first opportunity priced at $1.10.

Twelve months ago, the rate was at 2% but dropped twice by 0.25% in April and July

Sportsbet is also offering a market on the position of the Australian dollar in December 2017.

The dollar is currently at around 74.6 US cents to the Aussie dollar, slightly higher than the mark it reached at the end of 2016.

Sportsbet has the 75-80c range as a $3 favourite for the end of 2017, with a range of 80c-85c at $4, 85-90c at $6 and 90c or higher at $5.

The Australian dollar hasn’t been above 90c since late 2014, while it hasn’t been below 70c since the global financial crisis in 2008-2009.

A range of 70-75c, where it currently sits, is considered a $6 shot, while 65-70c is $7.50 and under 65 is $11.

The other market Sportsbet is offering is on the level of the Australia stock exchange’s ASX200 index.

The ASX is currently around the 5400 mark, 200 points higher than what it was at the start of the year.

But Sportsbet thinks there will not be much growth in the ASX in 2017, with a range of 5000 – 5249 priced as the $2.75 favourite for the end of 2017.

Sportsbet Financial Markets

Number of rate changes in 2017

$3.00: Zero

$5.00: One

$2.90: Two

$4.00: Three

$11: Four or More

RBA February Decision

$34: Decrease by 0.26 or more

$11: Decrease by 0.01 – 0.25%

$1.10: No Change

$7.50: Increase by 0.01 – 0.25%

$21: Increase by 0.26% or more

Direction of next Rate change

$1.75: The Rate will increase

$2.00: The Rate will decrease

Size of biggest change in 2017

$1.05: 0.25%

$8.50: 0.5% or higher

RBA Rate at the end of 2017

$3.00: Under 1.5%

$4.00: 1.5% – 2.0%

$2.75: 2.01 – 2.5%

$6.00: 2.51% – 3.0%

$11: 3.01 – 3.5%

$21: over 3.5%

AUD/USD at the end of 2017

$11: Under 65.00

$7.50: 65.00 – 69.99

$6.00: 70.00 – 74.99

$3.00: 75.00 – 79.99

$4.00: 80.00 – 84.99

$6.00: 85.00 – 89.99

$5.00: 90.00 or higher

ASX200 at the End of 2017

$6.00: Under 4500

$5.00: 4500 – 4749

$4.00: 4750 – 4999

$2.75: 5000 – 5249

$5.00: 5250 – 5499

$11: 5500 – 5749

$16: 5750 or higher


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