Last week’s surprise 50 basis point rate cut from the Reserve Bank of New Zealand has increased market odds for a September RBA rate cut. Prior to the RBNZ rate decision, the futures market had a 52% probability of a September cut compared to 72% currently. In addition to the change in pricing, there’s been some market chatter arguing that the RBA needs to cut rates in September to further weaken the AUD following the move lower in the NZD.
While I think a further RBA rate cut is inevitable, September is a little too soon and I feel more comfortable targeting a November or December date. The reason for this is that the RBA governor in my view last week hinted that despite standing ready to lower rates to support employment and inflation and hinting that rates will stay lower for longer, the RBA wants to see the impact on the economy from the last two rate cuts.
While the RBA may not be in a hurry to cut rates again I wouldn’t rule out a 0.50% cash rate by mid next year – that’s two more RBA rate cuts.