Australia’s inflation cools, RBA rate cut bets rise

Australia’s inflation slows, reinforcing RBA rate cut bets

Australia’s inflation cooled more than expected in the fourth quarter, bolstering expectations that the Reserve Bank of Australia (RBA) may move towards policy easing as early as its February 17-18 meeting.

Consumer prices rose just 0.2% quarter-on-quarter, matching the prior quarter’s pace and coming in below the consensus forecast of 0.4%. The trimmed mean CPI—a key measure watched by policymakers—advanced 0.5%, also falling short of the anticipated 0.6% gain.

On an annual basis, headline inflation decelerated to 2.4% from 2.8%, slightly below the 2.5% consensus estimate. Core inflation also undershot forecasts, easing to 3.2% from 3.6%, against market expectations of 3.3%.

The softer-than-expected inflation data strengthens the case for the RBA to pivot towards rate cuts in the coming months. Market pricing suggests a growing likelihood that policymakers could shift to an easing bias amid signs of moderating price pressures and subdued growth.

BoC expected to deliver rate cut amid trade uncertainty

The Bank of Canada (BoC) is widely expected to lower its policy rate by 25 basis points to 3.00% at today’s meeting, as policymakers navigate an economy slowing under the weight of restrictive borrowing costs.

With rates moving deeper into the estimated neutral range of 2.25%–3.25%, Governor Tiff Macklem and his team may signal a more measured approach to further easing. Adding to the complexity is the potential fallout from escalating trade tensions with the U.S., which could cloud the central bank’s outlook.

Investors will closely monitor Macklem’s assessment of economic risks, particularly how the BoC balances domestic policy adjustments with external uncertainties.

Fed expected to hold, market focus on Powell’s tone

Meanwhile, the Federal Reserve is set to keep interest rates steady at 4.25%–4.50% at its upcoming meeting. The focus will be on whether the central bank signals an extended pause in its rate-cutting cycle, either in its statement or through Chair Jerome Powell’s press conference.

Market expectations currently assign a 67.6% probability that the Fed will hold rates steady in March, with a 49.3% chance of maintaining the stance in May. However, bets on a rate cut surge to 75% by June, reflecting growing confidence that policymakers will begin loosening monetary conditions in the second half of the year.

Powell’s messaging will be key in shaping these expectations. A hawkish stance could reinforce support for the dollar, while any dovish tilt may fuel risk-on sentiment across global markets.