CommBank says interest rates will still rise, despite falling Australian dollar

The Commonwealth Bank has rejected speculation the Reserve Bank might cut rates rather than lift them any time soon, saying recent falls in the local currency are mostly related to international debt and do not change the Australian dollar’s strong medium-term outlook.

CBA currency strategist Joseph Carpuso says while the Australian dollar could fall as low as $US1.03 this week, it will stay higher than the US dollar throughout 2012.

The local currency fell to a two-month low yesterday, as investors bet against the prospect of another rate rise in the near future. At 4.75%, Australia’s rates are the highest in the developed world. The Aussie dollar was trading at $US1.046 this morning.

Carpuso says while many economists have pushed back expectations for the next rate hike – with many now tipping October, rather than August – he considers it unlikely the debt problems of Europe or the US, for example, will push the central bank into an increase.

“The market is fully expecting a rate cut by the Reserve Bank by the end of the year,” Carpuso told SmartCompany.

“Every time we hear from a RBA official, they’re not talking about a cut.”

Carpuso says while CommBank is reviewing its rate rise forecasts, he expects the Australian dollar to trade above the US dollar this year, and continued strength in the medium term.

He also expects a resolution on the Greek austerity package to relieve pressure on the Aussie dollar.

Carpuso’s comments come as Australian Property Monitors reveals national house prices edged up 0.1% in the three months ending May 31, leaving the median price at $548,109.

According to APM, Sydney prices lifted 1.1% to $646,662, and Melbourne prices rose 0.9% to $558,525. Canberra prices surged 1.8% to $578,994, and Hobart rose 0.8% to $329,502.

By contrast, Darwin house prices slumped 4.6% to $609,500, Adelaide dropped 2.6% to $438,255, Perth fell 1.7% to $535,735, and Brisbane declined by 1.2% to $446,554.

BIS Shrapnel yesterday rejected the likelihood of a house price crash, tipping steady prices throughout 2011, and moderate growth over the next two years.