Futures traders aren't convinced the RBA will hike rates until early 2020

Getty/Scott OlsonMine, Mine, Mine in IBs recently.

Traders continue to push back when they expect the Reserve Bank of Australia (RBA) will hike rates.

As seen in the chart from the ASX below, the probability of a 25 basis point increase to the cash rate, based on interbank futures as at the close of trade on Tuesday, is not deemed to 100% until early 2020.


Futures currently indicate that there’s a risk of a hike next year, but it’s not yet deemed to be a certainty.

Earlier this year, cash futures were pricing in the probability of one 25 basis point hike in 2019, as well as the risk of another.

Like so many economist that have also pushed back their forecasts, those expectations have slowly been whittled away over the course of the year.

While the expectation that wages growth will remain soft, keeping inflationary pressures muted, explain why traders are so reluctant to price in a faster tightening cycle, one suspects that recent trade tensions between the United States and China, along with signs that the global economy is softening after a strong acceleration last year, has contributed to scaling back of rate hike expectations in the year ahead.

Higher short-term funding costs in Australia may also be a factor given the risk it will lead to further out-of-cycle mortgage rate increases for borrowers.

Right now, while the collective view is still that official rates will still rise, traders believe they’ll remain lower for longer.

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