RBA interest rates: Traders scraps bets of Reserve Bank rate rise after US inflation

Already a subscriber?Traders have scrapped their Reserve Bank rate rise bets for this year after a surprise increase in the jobless rate bolstered hopes the central bank is closer to cutting borrowing costs than previously thought.

RBA governor Michele Bullock: Markets have priced out the chance of a rate hike this year, but not everyone is convinced.Before the jobs data – which showed the unemployment rate ticked up to 4.1 per cent from a revised 3.9 per cent – money markets were pricing in just a 5 per cent chance of an increase this year. Traders have been gradually dialled back their hawkish bets on weak retail sales and slowing wages growth.

ING’s regional head of research in the Asia Pacific, Robert Carnell, said the rate outlook in Australia remained “cloudy”.“A year-end cut is still possible, but only if this labour data softens more meaningfully than this and the inflation run-rate drops significantly, and soon,” said Mr Carnell.In the currency markets, the Australian dollar hit US67.

The spread between US and Australian 10-year bond yields has also narrowed to just 11 basis points from 25 basis points a month ago, helping the Australian dollar.The local dollar has been weaker this year because US government bond yields are more attractive than Australian returns, though the gap is shrinking. Typically, Australian bond yields are higher than US treasuries.

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