The focus this week will be on local June quarter inflation data as well as the US Federal Reserve board meeting. CPI data is expected to show no inflation pressures and remain well under the RBA’s target range once again (refer chart below), but the US Fed could possibly deliver a surprise 50 basis point rate cut (rather than the expected 25 basis points) on Wednesday. If this eventuates, we could experience a further rally in local rates as financial markets bring (even further) forward the timing of another rate cut by the RBA.
For me, I think the Fed will only cut 25 basis points as they want to simply stimulate economic growth rather than prevent a recession – although the Fed is likely to clearly communicate that further/multiple easing of monetary policy will be forthcoming. Markets are pricing a 100% chance of a 25 basis point cut Thursday morning (our time) and a 15% chance of a 50 basis point cut.