CHART OF THE DAY: Here Come RBA Rate Cuts

Getty/Michael Cooper

Most pundits expect that the next move in interest rate is still going to be up.

But Australia’s interest rate traders are not so sure and moved to begin pricing in a rate cut on futures markets out to 2015.

It’s not a huge move and it is only the probability of a cut which means that the OIS strip (overnight index swaps – a measure of the expected cash rate in each of the futures months) haven’t fully priced a full 25 basis points yet.

Highlighting this change in pricing TD Securities rates, FX and Commodities’ research team said in their Asia Pacific Weekly that:

Market expectations for the RBA to cut rates have ramped up significantly in the past week. The initial driver was the large miss in the Trade balance showing a significant drop in commodity exports, leaving investors wondering where growth was to come from, given the large net export contribution to GDP came from commodity exports.

Then today the RBA surprised the market by outlining more clearly what its views were on the AUD and on the economy.

The market pricing is still saying an RBA easing is a maybe not a certainty.

But clearly if the economy and data continues to be buffeted by weak consumer confidence and a high Aussie dollar, the chances that the RBA will move to cut rates will increase materially.

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