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Yet, financial market conditions are tough, returns are low, and share market volatility has returned. Retirees deserve safety, relaxation, and a decent income stream. Instead, the Reserve Bank of Australia (RBA) has once again kept interest rates on hold. That’s not all. Stock markets started the year with a fall led by the S&P 500.
In our current digital age, interest rate market conditions can favour those prepared to embrace innovative tools.
This article observes the main global market forces affecting Australian interest rates.
Australia is wedged between major global capital market forces of which the U.S. is the most significant.
Global interest rates are heavily influenced by U.S. Economic affairs. The U.S Dollar (USD) dominates the global monetary system as the counterparty currency in 88% of all foreign exchange trade. The remainder of trades are in Euro, Pounds, and the Swiss Frank; the USD is the conduit in 95% of RMB transactions. Other currencies barely rank. Interest rates in the U.S. matter because they affect our own.
In March 2015, the U.S. Federal Reserve (central bank) explained interest rate policy would be normalised by gradually raising its target range for the federal funds rate to more normal levels. Normalisation describes a move away from near zero interest rates to higher levels. The trend for term depositors is positive. The shift has begun slowly but it is underway.
Higher Australian interest rates attract foreign capital and the resulting inflows can put upward pressure Australian Dollar (AUD). The RBA is concerned a higher AUD could slow economic growth by raising the cost of our exports.
These fears should reduce as higher U.S. or Europe interest rates lure money offshore.
The chart above shows that interest rates in Australia and the U.S. are near the same level for the first time in nearly a decade. That’s good news but it has caused stock market jitters.
No one knows how far the stock market will correct but the gyrations serve as a timely reminder of the perils self directed investors face.
The U.S. stock market share price-to-earnings ratio (PE ratio) is in a historical high-range  and it is unclear if the highs are supported by solid earnings prospects. Cast your mind back to 2007 when the U.S. stock market (S&P 500) tested previous highs. The global financial crisis followed, yet the highs of 2007/2008 appear modest compared to where the U.S. stock market’s sits today. The chart below shows the S&P 500 at nearly twice the highs tested in 2000 and 2007.
Some self-directed investors might be wondering if asset prices are facing the possibility of a massive correction ten years after the global financial crisis.
Have financial markets once again misjudged risks?
They did just before the global financial crisis erupted in 2008. While nobody can reliably predict what comes next, Australian depositors can feel comfortable sheltered amongst the world’s safest banks.
True relaxation comes from peace of mind and that comes by having control over life outcomes.
Self-directed investors deserve peace of mind and a fair investment return, however the safety of deposits alone is not enough. Earnings matter too. Fintech solutions can help etch out extra interest returns by endowing our everyday digital devices with secure and simplified cash management solutions once only available to the most sophisticated corporate treasurers.
Researching, transacting and managing funds for the best term deposit interest rates and opportunity’s is now easy. A keen self-directed investor utilising available online cash management tools via an experienced provider allows them to potentially add to their term deposit returns immediately.
 An assessment of financial stability in the United States, Stanley Fischer, Vice Chairman, Board of the Governors of the Federal Reserve System, at an address at an IMF workshop in 27 June 2017.
 Financial Stability Review, April 2017 Overview, Reserve Bank of Australia, http://www.rba.gov.au/publications/fsr/2017/apr/overview.html.