Today, traders were pricing in a roughly 41% chance of a rate hike in August. Currently, this is between ~12% and ~16%, as the OIS market is still fluctuating. In terms of basis points, the former was around 10 basis points while the latter is currently 3-4 basis points. Either way, traders aren’t really pricing in a rate cut at the moment.
RBA implicit rates, based on OIS pricing
Taking this into account, the Aussie decline fits the narrative that the RBA has just disappointed a small part of the market that was hoping for a more hawkish stance. However, the central bank has certainly not closed the door to rate hikes in the coming months.
Much will depend on future data. But at least for now, there is no major reassessment in the rates market, at least from the perspective of the RBA’s outlook. This is, at best, a moderation of rate hike expectations.
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