Interest rates: RBA tipped to hold cash rate this week

Bond markets have sold off after further evidence of resilience in the US economy left traders with little choice but to start pricing in few interest rate cuts this year.

“The markets are bracing for a potential surprise by the because we had three important inflation data releases over recent weeks, suggesting that maybe the economy is not cooling as quickly as expected,” said Rodrigo Catril, a senior FX strategist at National Australia Bank.Australian yields moved in sympathy, with the three-year rate, the most sensitive to the cash rate outlook, climbing to a one-month high of 3.78 per cent.

Policymakers previously indicated they expected three rate cuts this year, but Mr Catril said there was a risk that the Fed could take “one cut out”. Even so, Mr Catril still believes the Fed will lower the benchmark three times this year and is confident that the RBA will follow, not precede, the US central bank in cutting rates because Australian inflation is still too high and lags the US.“The present market is saying that we don’t think that the RBA would go before the Fed, so if you are pushing back the Fed, you are pushing back the RBA,” said Damien McColough, head of rates strategy at Westpac.

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