It's worth knowing before the RBA decision [Australia]

The Bank's decision on interest rates is approaching a big step, which may lead to the cut of the main interest rate by 25 basis points from the 1,5 percentage. to 1,25 proc ..

Further reductions are waiting for us?

The current level of 1,5 percent is the record low level of interest rates in Australia, which over the years have been at much higher levels. Investors have become accustomed to the fact that the RBA maintains a higher interest rate on deposits, that the carry trade strategy consisting in the purchase of the Australian dollar for lower interest rates was commonplace. As early as in 2011, the main interest rate was 4,75 percent, and for three years it has been kept at 1,5 percent. Now the chances of tomorrow will be set a new minimum at 1,25 percent. And what's more, it may not be the end of the cuts yet.

An increase in the unemployment rate along with a drop in inflationary pressure and a drop in property prices may be the reason why the Bank of Australia may decide to cut. RBA chief Philip Lowe himself said that lower interest rates could support employment growth and would speed up the period in which inflation is consistent with the goal. Considering this assessment, we can consider the next meeting lowering interest rates.

Market probability for cutting interest rates in Australia. Source: Bloomberg.

According to the interest rate market, there is almost 90 percent. the probability that the RBA will decide to cut. Therefore, it seems that the FX market should not be such a surprise, and the AUD rate could have been discounted for many weeks. However, the uncertainty is that we will see a further cut in the second half of the year. Investors will answer this question. The chances of such a move are priced from around 40 percent. probability, so there is still a lot of room for discounting.