Despite the respective central banks delivering rate cuts over the last two weeks, Australia and New Zealand’s interest rates remain higher than the rest of the developed world at 1.50% and 2.0% respectively, including negative cash rates in Japan, the Eurozone, Sweden, Denmark and Switzerland. As a result, investors from all over the globe continue to seek out a positive return, which is pushing the Australian and New Zealand dollars higher and frustrating the central banks.
With low inflation forecast for some time and a stubbornly high currency, markets are starting to price in further RBA rate cuts, with some now calling a 1% cash rate in by mid next year.
Financial market pricing is currently leaning toward another rate cut, with a 40% probability of a rate cut priced in for November, rising to a 65% chance by mid next year (refer chart below).
Cash rate futures market