For a move that had been priced in, the Reserve Bank of Australia’s decision to lower the overnight cash-rate target drew outsize reactions across asset classes.
Overnight indexed swaps traders who saw better than 60 percent odds for an RBA cut were proved right, as policy makers reduced the benchmark to a record-low 2.25 percent. As the attached chart shows, Australia’s bond futures rose to records, stocks reached highs last seen before Lehman Brothers collapsed and the Australian dollar plummeted almost 2 percent to a more than 5 1/2-year low.
Part of the exuberance was driven by prospects that today’s rate cut will be followed by at least one more, possibly as soon as March 3. Interest-rate swaps traders are seeing a 63 percent chance the RBA will take action again.