Markets Are Sending a Worrying Signal About the Australian Economy
- Cash-rate futures are below 1.5% through the end of next year
- Floor for the Aussie could be 65-cent range, investor says
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Australia’s central bank says the next move in interest rates is a hike. Yet investors are starting to embrace the idea that policy makers will be forced to cut.
In the bond market, the yield curve for overnight index swaps -- a gauge of expectations for short-term rates -- has inverted, showing that traders expect the Reserve Bank of Australia’s cash rate to be slightly lower than the current 1.5 percent in a year’s time. Similarly, the cash-rate futures market is now suggesting about 10 percent chance of a cut in the second half of next year, and less than 5 percent for a hike.