The odds of a RBA rate cut in September has risen sharply as Australia 10-year yields fall below the cash rate of 1.00%
Yields, yields, yields. That continues to be the main story driving the aussie and the move higher (lower yields) in domestic bonds today is weighing on the currency following the RBNZ surprise decision to cut rates by 50 bps instead of 25 bps.
Of note, Australia 10-year bond yields have solidified their drop below the RBA cash rate of 1.00% and is dragging the currency lower on the day.
This comes as we see an increase in odds for the RBA to cut rates again next month:
The cash rate futures now show a ~68% odds for the RBA to cut rates by 25 bps on 3 September. That has jumped up from just ~47% odds yesterday.
That being said, the RBA approach has been relatively different to the RBNZ in the past and this year's policy moves so far are evident of that.
During the current cycle, the RBA leans towards being more reactive while the RBNZ has taken a more proactive approach in easing monetary policy. As such, I reckon the RBA will still stay on hold in September barring any massive deterioration in economic data.
On Friday, we'll be hearing from RBA governor Lowe as he delivers the central bank's semi-annual testimony to the House Economics Committee and we'll also be getting the latest Statement on Monetary Policy (SoMP) from the central bank.
Let's see if there will be any further clues there for what we can expect next month.
