The US Federal Reserve is poised to raise interest rates this week but the Australian share market's ongoing rally could relax in anticipation of the board's accompanying comments.
Australian investors will find out on Thursday morning whether the US Federal Reserve will raise rates for the first time in 12 months, which AMP Capital's chief economist Shane Oliver said is 100 per cent priced in.
"If they hike rates it's certainly not going to be a surprise to anybody," Dr Oliver said.
"The focus is going to be on how dovish or hawkish the statements are that the Fed will put out after the meeting and the subsequent press conference by Janet Yellen."
The rate range is likely to increase by 0.25 per cent to 0.5 - 0.75 per cent, and a further two rate hikes are expected next year, he said.
"The Federal Reserve will probably express confidence in the economy and therefore leave the impression that more hikes are on the way."
In the run-up to the meeting there may be a bit of nervousness because the market has been used to low interest rates for so long, he said.
"As we get towards Wednesday we might see the market get a bit more constrained and have a bit of a pause," Dr Oliver said.
"Once that's out of the way and providing the Federal Reserve is not too hawkish then the market rally will probably continue because the global outlook looks reasonably positive."
The Australian share market gained 0.3 per cent on Friday and hit its highest level since late August.
It is expected to open higher again on Monday in what is a seasonably strong part of the year called the 'Santa Claus rally'.
"The bulk of that strength usually kicks in around mid-December but this year Santa Claus seems to have come early," Dr Oliver said.
Locally, the Australian Bureau of Statistics will release labor force figures for November on Thursday, with the number of new jobs predicted to rise by about 17,500 and the unemployment rate to remain stedy at 5.6 per cent.
"I suspect that we'll see a continued weakness in full time jobs and strength in part time jobs," Dr Oliver said.
