Traders Raise Bets on Lower AU Interest Rates

Reserve Bank of Australia chief Glenn Stevens said last week that markets find the idea of his board’s “masterly inaction” unappealing. On cue, traders raised bets on lower interest rates.

After Stevens spoke on July 3, 30-day interbank futures showed about a 56 percent chance that policy makers will lower the benchmark rate by a quarter-percentage point by March, compared with 30 percent the day before. The extra yield on Australia’s 10-year note over similar-maturity U.S. Treasuries slid to 90 basis points last week, the least since October 2006.

In the wake of a largely unchanged rate decision statement on July 1, Stevens caught some by surprise by saying investors are underestimating the probability of a “significant fall” in the Australian dollar at some point. The RBA’s comments on policy stability were to clarify it didn’t see a risk of imminent increases, he said. The Aussie completed its longest monthly rally since 2009 in June, threatening the competitiveness of exporters.


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