GOLDMAN: Brace for an RBA rate hike in February 2018 -- or earlier

( WILLIAM WEST/AFP/Getty Images)

Goldman Sachs expects the Reserve Bank of Australia to start raising interest rates in February 2018 with the chance of an earlier move entirely possible.

Surging commodity prices are “transformational” for Australia’s broader economic outlook, the bank’s economists led by Tim Toohey said. The price rally puts the economy on track to record the largest trade surpluses since the 1970s, which could boost the Australian dollar in the near term and pave the way for increase in private demand, they said.

Australia’s trade surplus soared to a record high of $3.511 billion in December, smashing market expectations for an increase to $2.2 billion. The surge reflects a positive story of higher commodity prices and rising export volumes, which should support economic activity in 2017.

The record surplus also sent the Australian currency and bond yields higher. The Aussie is trading at its highest level since November and is up 6% this year against the greenback.

AUD/USD Daily Chart

“Notwithstanding the strong performance to date, the lagged impact of earlier rises in spot prices suggests a further improvement in the trade balance and boost to national income into 2017,” the economists said.

Goldman Sachs sees three rate rise from the RBA in 2018 though the odds for an earlier move was increasing, according to this report in the Australian Financial Review. Toohey sees about a 40% chance of a rate hike as early as November, according to the report.

Goldman Sachs views compares with futures traders who see the RBA staying on hold for the rest of the year.

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