Traders are expecting another rate cut in July

It's possible that traders expecting Australia's central bank to stop raising interest rates next month and then cut from July may be disappointed.

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Swaps covering the Reserve Bank of Australia's July meeting now signal a 50% chance of a rate cut, an about-face from two weeks ago when they were still expecting another hike by then. The nation's three-year bond yield has fallen to more than 70 basis points below the RBA's benchmark, the most in a decade, in a bet that rates will be lower by the time the securities mature.

The banking sector in the US and Europe has been predicting that central banks will stop their hiking cycles in order to bolster financial stability because of the rapid rise in their bets on easing. Federal Reserve Chair Jerome Powell said last week that the policy committee considered a pause due to the banking turmoil before tightening to tackle inflation.

Philip McNicholas, Asia sovereign strategist at Robeco Group, said markets have gotten carried away in their push for easing. It seems hard to extrapolate that they will do an aggressive turn in policy rhetoric because of the limited direct spillovers to Aussie banks and RBA's singular focus on inflation targeting. Australia's inflation rate probably held above 7% for a fourth month in February from a year earlier, according to a Bloomberg survey of economists before the data is published Wednesday. The average rate for a five year period through the end of 2021 was just 1.7%.

The RBA Governor Philip Lowe has flagged the importance of this week s CPI print, saying the board will look at four pieces of data, including the February inflation and retail sales numbers, before making a decision on whether or not to stop tightening.

The Fed pushed ahead with its ninth-straight rate increase last week, shrugging off concerns that the collapse of lenders such as Silicon Valley Bank and Credit Suisse Group AG would endanger the global economic outlook.

If the Fed had gone on hold, I think you could make a case for the RBA doing it, said Kerry Craig, a global market strategist at JPMorgan Asset Management in Melbourne. A slowdown in growth isn't pointing to a recession, and the housing market looks to be stabilizing, so it's difficult for the RBA to pause in that environment, he said.

Taking everything into account, it probably won't take much upside surprise in this week's inflation numbers to decide one more hike may be the right thing to do.

Here are the key Asian economic data that will be released this week:

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