Bloomie: Markets give up on RBA, Aussie dollar to 65

See the latest Australian dollar analysis here:

Macro Morning

Oh yes, via Bloomie:

In the bond market, the yield curve for overnight index swaps — a gauge of expectations for short-term rates — has inverted, showing that traders expect the RBA’s cash rate to be slightly lower than the current 1.5 per cent in a year’s time.

Similarly, the cash-rate futures market is now suggesting about 10 per cent chance of a cut in the second half of next year, and less than 5 per cent for a hike.

…”If things really turn down here and you’ve got some serious declines in house prices, probably mid-60s would be the floor on the Aussie” against the dollar, said Craig Vardy, head of fixed income, Australia, at BlackRock in Sydney.

I noted yesterday as well that the yield curve is flattening fast:

With a catch down to US inversion in the offing:

The RBA’s lunatic bulls are always the last to know:

David Llewellyn-Smith is chief strategist at the MacroBusiness Fund and MacroBusiness Super, which is overweight international equities versus Australian to benefit from a falling AUD. 

David Llewellyn-Smith
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    • Perhaps if the RBA just play into the ongoing theme of Australian exceptionalism, which basically everyone in Oz believes now, and has for a while; then, perhaps, they can claim “Whoocouldanode!?”

      I seriously wonder what is going on at the RBA.

      I believe they are trying to not spook the horses…

      Either they are self-deluded, stupid and desperately trying to manage a soggy house of cards whilst they see a gale blowing….I’m really not sure.

      Something just doesn’t seem right.

      • proofreadersMEMBER

        “I seriously wonder what is going on at the RBA.” Answer = nothing; but they are in intense competition with ASIC and APRA out gold, gold, gold for doing nothing better than anyone else?

      • Boxed in.
        Has any country yet successfully returned from near ZIRP without completely breaking everything?

        The US looked close – but that looks to be reversing now.

        Problem is, the only realistic way to get back to normal rates is to engineer the period before Volker so that a Volker can come in and save the day.
        They need inflation to be *reported* at 10+% for at least a year or so before they can really up the rates, but there’s also debt repayments to consider.
        It’ll wipe out the bond holders, crush the government’s ability to borrow, and completely screw a whole bunch of things.

        If stagflation is the *solution*, holy crap, the problem is terrifying.

  1. 65c ?? More numberwang. The charlatan finance industry just keeps putting out numbers off the top of their head.The AUD will fall perpetually until the Oz interest rates rise above those of the US. It could be 65c, 55c even 45c. Maybe even lower, who the hell knows. But what we do know is a significant fall is baked in. There, was that so hard?

  2. Wow, those wage price index forecasts are horrible. At some point wouldn’t you look back and think, “Hmm, there seems to be a pattern emerging here, maybe I should recalibrate this model…”. I wonder what they’re using to consistently introduce such optimistic bias?

  3. The scariest situation is seeing wages stagnate and not keeping up with inflation.
    This is what those libtard free marketeers want. If people cannot pay their bills, that’s their problem.
    I say if people cannot pay their bills it’s the banks problem, and ultimately our problem.