There’s a 72% Chance of an RBA Cut: AUD/USD
Rowan Crosby • 2 min read
Markets are pricing in a 72% chance of a rate cut when the RBA meets this week. However, history suggests that we don’t often see two interest rate cuts in a row.
If the cut is to come to fruition as the market expects, the cash rate would fall to 1.0%, after getting chopped to 1.25% the last time the RBA met. The interesting stat is that we have only seen consecutive rate cuts 12 times since 1990. So history is telling us that this is a somewhat rare occurrence.
The odds of the cut at the July meeting only increased since the speech given by Governor Lowe, where he all but conceded there would be more cuts on the way. As a result, the big four Australian banks are all suggesting that there will be a July cut as well.
The last consecutive rate cut was in 2012 and was on the back of concerns around the global economy.
There have been 46 rate cuts since 1990, eight of which were consecutive cuts. During the GFC in 2008, the RBA cut the cash rate from 7% to 3.25% in five cuts in a row.
We also have to remember, that the reasons for the cuts at the moment and predominately around the employment situation. With the unemployment rate above 5.0% (5.2%), that has kept the pressure on the RBA to continue with a loosening policy for the time being. The hope is that rate cuts will stimulate the jobs market, which will in turn boost wages and then inflation.
There are plenty of sceptics out there that don’t believe that is the case and the RBA should be keeping their bullets, for a case when it is truly needed. Such as a GFC style meltdown.
Nevertheless, we are all expecting a cut at this stage and we won’t know more until Tuesday.
For the time being, the AUD/USD has bounced all the way back to the 0.7000 mark and that should theoretically provide some decent selling pressure below the 0.7050 mark. Fundamentally a cut would hurt the Aussie, but as we saw last time, with the market pricing that in, the AUD actually bounced in the days following.
I still remain bearish and fully expect Lowe to cut again. I like the 0.7000 level as a place to be looking to short, but there is always high risk headed into such a big RBA meeting.