Citi analysts believe Australia’s lower-than-expected June quarter inflation figures have solidified the likelihood of a 0.25 percentage point rate cut at the Reserve Bank of Australia’s (RBA) August meeting. According to Citi G10 rates trading strategist Ben Wiltshire, markets have already factored in this potential easing of monetary policy. Australian risk assets have responded positively to the news, with the reduced risk of higher inflation boosting market sentiment.
Wiltshire noted that the upcoming Australian employment data, scheduled for release on August 14, will be crucial in determining the pace of RBA easing. Citi’s base case anticipates rate cuts during the statement of monetary policy meetings in both August and November. However, the strength of the labour market data could influence whether the RBA opts to implement an additional rate cut in September.
“Markets will now look to jobs to ascertain if the surprise weakness at the last employment print was an anomaly or the emergence of a structural trend,” Wiltshire stated. The focus will be on assessing whether the previous employment data represented a temporary blip or indicates a more significant shift in the labour market. Currently, market expectations assign a 40 per cent probability of a rate cut in September and an 80 per cent probability of a cut in November.
