The Australian dollar fell as much as 0.9% and three-year policy-sensitive government bond yields fell by eight basis points after the monetary policy statement. Swaps traders boosted bets on a February easing to nearly 70%, from 50% the day before, as contracts now trade. Fully priced for two price cuts by May.
Australia’s central bank said it was “gaining some confidence” that inflation was moving sustainably towards target, prompting traders to boost bets on a rate cut from February.
The Reserve Bank of Australia kept the cash rate at 4.35% on Tuesday, in a widely expected decision, marking more than a year at that level.
The rate-setting body said “some upside risks to inflation appear to have diminished” and dropped the old line that it was not ruling out anything in or out of politics.
Markets, economists and lawmakers have shown increased interest in the Reserve Bank of Australia’s final meeting of the year, after the economy posted another disappointing reading last week and the dovish tilt in Tuesday’s policy statement keeps alive the government’s hopes of easing policy, ahead of elections scheduled to be held in six months.
