Quotes from Westpac Institutional Bank:
-Markets are already pricing in more than a full cut of 25bps from the RBA by mid-2015. Certainly any move to bring the cut forward by the RBA will lead to markets pricing in another cut.
-However, swap rates are unlikely to fall too much further (the 3yr swap rate is currently around 2.5%) since markets will be focussing on the expected first hike by the US Fed, which we anticipate is timed for September. (FOMC events on December 17 have brought forward the risks around this timing.) Anticipation of that event is almost certain to trigger a rise in fixed rates in the US. That is likely to contain any further falls in fixed rates when the RBA moves.We are also at odds with the market around rates in 2016.
-We anticipate rate hikes from the June quarter of 2016 as the Australian economy derives a considerable boost from a strengthening world economy and the Fed's tightening cycle is infull flow.
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