US equities softer, Europe stronger, oil lifts, bets on an RBA rate cut tomorrow lift, ASX futures up 4 points

The S&P 500 (first chart) looks as though it's beginning to roll over a little from its recent strength. I've circled recent market sell-offs in the first chart that may or may not constitute what happens next, depending on whether or not the US gets any good news in the next few sessions to propel it higher. In normal circumstances this might be a reason for traders to turn a little bearish on the Australian stock market and its dollar; however, cash rate futures are now pricing in a 62% probability of a rate cut to 2.00% tomorrow when the RBA concludes its board meeting. Irrespective of whether this happens or not tomorrow, if we look further down the interest rate curve to April, where the implied yield is 2.045%, a rate cut within the next two meetings is almost a dead certainty as far as the market is concerned.

I have little doubt that, while today's second chart (percentage moves year to date) shows that the ASX 200 and S&P 500 have already decoupled significantly with regard to outright performance this year, Australia will continue to be buoyed by the notion that it is in an interest rate easing cycle. So does our market look toppy? Yes. Are traders taking profits? No not really. Why? Lower interest rates are going to continue to motivate the bulls, and make the quest for yield all the more important for income-seeking investors in Australia.

Lastly I note that it is interesting that the Australian dollar is holding up so well in light of this RBA easing bias. Although it has come off a little this morning since waking up, the AUDUSD pair remains stuck at US$0.78 and is proving to be a difficult trade for those who assumed it would follow the cash rate curve lower given the landscape of an unmoved US Federal Reserve. I've highlighted the very brief sell-off that occurred last month when the RBA cut rates, and while the market is still split over whether they'll cut again tomorrow, the market is more confident now that a further 25 basis points will come off either now or next month, so I think this move is largely priced into the AUDUSD already, relative to last month. I suspect that, for now, the Australian stock market being back en vogue is bringing in some more foreign money, which will potentially continue to cushion the Aussie dollar from these rate cuts.

Today‚Äôs charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to get your free $100,000 demo account.

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