The latest reading from the Westpac/Melbourne Institute leading index points to a slowdown in the Australian economy in the coming months, confirming the Reserve Bank of Australia's (RBA) comments in the minutes of its 5 August Board meeting. The annual rate of growth in the leading index has decelerated from a 10-year high of 6.1 percent in November 2007 to 3.1 percent - the lowest rate since May 2003.

The downward trend in the leading indicator adds to previous economic and survey reports suggesting that the Australian economy is losing momentum. This has sparked speculation that the RBA is poised to cut interest rates as early as this month.

The same is not true for the US. It appears that in spite of the lingering worries over the housing and financial sectors and the economy in general, some Federal Reserve officials are making noises about the need for tighter monetary policy.

For instance, Fed President Lacker last night noted that current policy is ‘very cumulative' and requires the Fed not to delay raising interest rates. Although he acknowledged the stress in the US credit markets, he indicated that the Fed might not be able to wait until calm is restored before interest rates are raised.

Fed President Fisher held the same view, saying that interest rates might have to be raised sooner than some think. Fisher also indicated that higher rates would not hurt a recovery in the credit markets.

While the RBA is signaling lower interest rates, and some Fed officials call for higher interest rates, the Bank of England (BoE) lies stuck in between. Minutes of the BoE's Monetary Policy Committee meeting in August showed that while the bank voted to keep policy unchanged at 5 percent, one member wanted higher rates and one member wanted lower rates. As in the US, this underscores the conflicting forces - slowing growth and high inflation -- affecting the UK economy.

Although still volatile, the weakening in commodity prices seen over the past few weeks and indications that the slowdown in global growth is gathering momentum, would tip this balance in favour of lower interest rates in the coming months, or perhaps, as early as the next.

Today, the Australian financial market will get more clues on the RBA's thinking and an update on car sales. The RBA Monthly Bulletin is expected to reiterate previous dovish comments the RBA made -- that slowing growth would ease inflationary pressure and pave the way for easier monetary policy.

Meanwhile, the Australian Bureau of Statistics will release data on new motor vehicles sales for July. The annual growth in sales of new motor vehicles has steadily declined from a high of 11.2 percent in December 2007 to just 1.4 percent in June. The income tax cuts that became effective in July could prod some to go out and buy new cars. However, this would be offset by high petrol prices - crude oil reached a record high in July - and high interest rates.