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Chinese iron ore demand and AUD will lift: Bill Evans

China's housing sector is in bad condition but its demand for iron ore will increase, helping to ease pressure on Australia's iron ore exporters, Westpac Chief Economist, Bill Evans told a CEDA audience in Brisbane .

Speaking at CEDA's Investment markets and financial outlook forum, Mr Evans said iron ore prices are driven by what's happening in China's housing market and about 50 per cent of the steel consumed in China goes into residential housing.

While China's housing sector is not doing well, and the country's job sentiment is at near record lows, it's inevitable that demand will pick up in China, he said.

"We saw the iron ore price fall to $70 today because the housing market is in such trouble," he said.

"We still believe growth in China…will hold comfortably above seven (per cent) and with the strength of the US economy boosting the rest of the world, specifically China, in 2016 China's growth will be 7.8 per cent.

"I think we are going to see a stronger policy response from the Chinese authorities."

On the world economy, Mr Evans said the global economy will start to gather momentum partly driven by the US and a turnaround in China.

"I'm more optimistic about the commodity cycle and the Australian dollar is a world growth linked currency, so if I'm right on world growth then I expect to be right that the Australian dollar will edge up next year and to be somewhat stronger in 2016," he said.

"If I'm wrong on the world economy, then we have another three years like we've had."

Driven by the lift by the advanced economies, world growth will peak in 2016 and will then slow with a fall in 2018, he said.

On Australia's cash rate, Mr Evans said it's a fairly safe bet the RBA will increase it through 2015-16.

"It's my view, the current market forecast for what the Reserve Bank will be doing is widely out of line with what will happen," he said.

The Reserve Bank is saying they'll do nothing in 2015-16, along the lines of activity in 2004-06, he said.

It's my view that we'll be seeing rising interest rates through 2015-16, he said.

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