You can put your house on a rate cut tomorrow (pun intended). This morning’s data has been a avalanche of dross. Markets are repricing cuts as we speak. It’s now an 84% chance of 25bps tomorrow:
Three cuts are priced for the year ahead:
And the most likely path is another cut in February and March:
The RBA is behind the curve. It looks like Q3 GDP is going to come in OK (who knows?) but we’re clearly headed into a partial mining bust and there is nothing to pick up the slack. China’s bounce is so far pretty insipid and there is an increasing likelihood that iron ore and coking coal prices will keep falling over the Christmas break. The partial bust could get worse very quickly.
But even if the data is suggesting 50bps is worthy of consideration, the RBA has boxed itself it. Cutting by that hard now will send a panic signal. While that would be welcome in the dollar, it’s not a great idea for consumers.
Therefore, although the data says rates should be lower, the RBA can’t ’em there until February and March.
They erred last month.
