We need to watch the RBA closely

RBA Preview: Will We See Another Cut?

Posted Saturday, September 28, 2019 by
Rowan Crosby • 1 min read

It’s the start of the month of October and as we know, that means the RBA is set to meet this coming Tuesday.

There is growing expectations around what exactly will happen this week, with the odds stacked in favour of a rate cut.

During the week, we heard from Governor Lowe in a widely anticipated speech, whereby most thought he would be getting set to virtually lock in a rate cut.

That wasn’t the case and while he hinted as much, he didn’t lock it in with any real certainty.

Prior to the speech, the odds of a 25bp rate cut in October where around 75%. After the speech they fell sharply back to around 60%, as many wrongfully interpreted what Lowe had to say.

Since that point, they have now jumped and sit at 77%.

That means there is a very high chance we’ll see a cut in October. Odds on in fact.

What the market doesn’t seem to be considering is the chance of a 10bp cut. The economy is not in dire straights by any account, with the major concern (outside of inflation) being the fact that the unemployment rate is pushing higher. It sits at 5.3% currently.

There is also the fact that the US just cut rates as well.

As we know the world of currencies are a bit of a war at times and a race to the bottom for many. We only need to look to Japan’s checkered history.

So the RBA do have an incentive to cut this week and while the AUD/USD has already been soft, the fact that the odds still sit at 77%, suggests we will see more downside if the OCR falls to 0.75% this week. 

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