The Australian dollar tumbles as markets now eye a rate cut in two weeks by the Australian central bank
- Australia Q1 CPI, headline 0.0% q/q (expected 0.2%)
- AUD drop on CPI's flat headline results, core measures under expectations also
- Does this algo hold the key for an RBA rate cut?
- AUD - responses to the CPI coming in, banks shift expectations for RBA cut to May
- More firms shift their RBA rate cut forecasts to May after disappointing CPI data
With the RBA next meeting on 7 May, markets are now anticipating that the central bank will proceed with a 25 bps rate cut to send the cash rate to 1.25%. In terms of cash rate futures pricing for the RBA to cut rates in two weeks' time, the probability has jumped up from 14.2% yesterday to 71.0% today.
And we also saw the aussie tumble with AUD/USD falling from 0.7090 to a low of 0.7027 where it trades just above currently.
There won't be much else in terms of key data points standing between now and 7 May (aside from retail sales data on the RBA day itself) so the central bank will have to ponder between sluggish inflation and wages data, slightly improved Chinese economic data, and a labour market which is holding up but unsure of further softening in the coming months.
All else being equal, I reckon the RBA could err on the side of caution to cut rates in May but they will have much room to deliberate before making another move in the coming months; unless the global economy deteriorates at a sudden pace that is.
As for AUD/USD pricing, this looks like it could potentially give sellers the impetus to test the 0.7000 handle over the coming sessions. However, unless the RBA is very far behind the curve on rate cuts - which they are not - then scope for further weakness well below the 0.7000 handle is something I won't subscribe to for the time being.
