Westpac: Why is the market expecting a rate cut?

Cash rate futures markets are priced for a rate cut in early to mid-2016 and Westpac is wondering why. The prices of cash rate futures imply a “90% chance of rate cut by mid-2016 and a 50% chance of one by November.” Westpac sees the Federal Reserve raising rates in September, a 3% growth rate in Australia in 2016 and a Reserve Bank which views the Australian unemployment rates as having peaked. Westpac chief economist, Bill Evans, says “Markets may be expecting that, in the event of the labour market faltering in such an environment the Bank may see the need to restore more stimulus across the economy. We are not convinced about such prospects but we are also surprised about current market pricing.” He sees very little chance of a 1 September rate cut and expects rates to remain on hold for the rest of 2015 and through 2016.