The Greek election victory of the anti-austerity Syriza party has increased investor uncertainty by putting further strain on the stability and growth prospects of the Euro Block. Syriza apparently wants to remain in the Euro zone but how this can be achieved along with other objectives to renegotiate bailout terms and stimulate the economy remains to be seen.
World foreign exchange markets have already been struggling with the Swiss decision to remove the cap on the euro transfer value which generated large losses for highly geared currency traders betting on a fall in the Swiss franc.
Now the euro especially will come under further pressure until both the demands of Greece are resolved and world financial markets adjust to the European Central Bank's trillion dollar easing program.
Since December, the central banks of Canada, Norway, Denmark, Sweden, India and Switzerland have all reduced their official interest rates.
Now our financial markets are not unrealistically expecting the Reserve Bank to reduce the official rate by 0.5 per cent by year end.
The odds are increasing that the first 0.25 per cent reduction may even occur next week in order to reduce the inflow of funds seeking a safe haven.
Certainly, if the Reserve Bank is set on seeing the dollar trade in the mid 70 US cent range, lower rates would help achieve this.
While lower interest rates will benefit geared consumers and investors, there's little evidence from overseas experience that they will also increase our growth prospects.
Read the full article: Australian investors should exercise caution in current financial climate