Daily Flows
- Lower-than-expected Australian inflation has put downward pressure on interest rate offerings.
- Market participants should be on the lookout for any term deposit rates above 5.00% today, as these may become harder to achieve going forward due to shifting monetary policy expectations.
- Currently, AMP’s (A-2/BBB+) offering of 5.05% remains a standout.
Aussie Inflation: Is It Enough for a February Cut? U.S. Federal Reserve Takes a Cautious Approach
- Yesterday, Australian inflation printed at 2.4% y/y (0.2% q/q), while trimmed mean inflation fell to 3.2% y/y (0.5% q/q), marking the lowest levels in three years.
- The data came in below both market expectations and the RBA’s November forecasts, strengthening the case for an earlier rate cut.
- Cash futures traders are now pricing in a 90% chance of a February rate cut, up significantly from 70% before the CPI release.
- Many economists have also brought forward their rate cut forecasts from May to February in response to the softer inflation print.
- Market sentiment and mainstream media continue to reinforce the narrative that the RBA will cut rates in February. However, a tight labour market, global re-inflation risks, and inflationary pressures from a weaker AUD could see them hold off for now.
- Overnight, the U.S. Federal Reserve held rates steady, noting that unemployment remains low and removing its previous reference to inflation making progress toward 2%.
- The Fed provided little clarity on whether a rate cut will come at the next meeting, with Powell stating they are in no hurry to cut and that the funds rate remains above the neutral level.
