The market is now pricing in a 25 bp cut at tomorrows meeting of the RBA.
Given the sentiment in the air at the moment, markets have been seeing significant money flowing into the likes of bonds and that is seeing the odds of a rate cut increase.
The moves have been sparked in response to the coronavirus outbreak that has seen markets get hit hard. Stocks are down by more than 10% in a week, which is one of the biggest corrections we have seen in recent times.
On top of this, we saw the first signs of what the virus could mean for the global economy, with Chinese PMIs taking a bath and recording near-record low readings. Suggesting China is going to feel the fallout from what has been happening.
So as we write, there is a strong expectation that the RBA will cut at tomorrow’s meeting, but what are the RBA actually saying?
As yet, Lowe has been circumspect, but the reality is that the RBA doesn’t always respond quickly to this type of thing. A quick panic sell-off is different from something that is playing out on a fundamental level over a period of time. And while we are likely to see some impact as mentioned, is it a long-term thing?
So far the AUD/USD is down very sharply and is sitting around 0.6500, however, price has rebounded strongly from under 0.6450 even as markets got hit hard to close out the week. On the session today, price is also up, but as we know, we really need to wait for the US session as it is clearly leading the charge at the moment.
So in reality, we wait and see what Lowe says, but while markets are pricing in a rate cut, I suspect that’s not what most economists are thinking will happen.