Australia’s cash rate remains at 1.5 per cent but there are signs that we may have reached the bottom of the rate cycle. The major banks have already begun lifting home loan rates and this trend looks set to continue as mortgage funding sourced from overseas becomes more expensive.

Donald Trump’s election victory also marked a turning point in bond yields on the expectation that his policies will be a stimulator. US 10-year bond yields rose slightly to 2.45 per cent in 2016, while Australian 10-year government bond yields lifted to 2.79 per cent after reaching an all-time low of 1.83 per cent in August.

The US dollar has also strengthened against the Aussie dollar, which finished the year at US72.36c after hitting a high of US78c in November.

Looking ahead

The prospect of higher interest rates and inflation, after almost a decade of abnormally low rates, marks a turning point for global financial markets. There are bound to be setbacks along the way, as the world weans itself off cheap credit, but the gradual recovery in global economic growth is just what the central bank doctors ordered.


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