We've been making the point for some months that although surveyed economists and futures markets did not agree, the labour force figures and a range of other data across our chart packs looked so suspiciously weak that in spite of the evident wishes of the Reserve Bank interest rates may eventually have to be cut, although this could clearly take a while to play out.
It has taken a little while but a glance at the Friday market action of determined prices in respect of 30 Day Interbank Cash Rate Futures shows that the sentiment has shifted markedly in favour of a further cut in this easing cycle.
The February 2015 contract was trading at 97.58 resulting in an implied yield of 2.42 percent and suggesting a 36 percent chance of a rate cut as soon as the next RBA Board Meeting in February.
Much can happen between now and February of course, especially within commodities markets (which have been one of the key catalysts for the shifts in sentiment) but if I was a betting man I'd look at a March cut, and perhaps even two cuts before the end of Q2 2015.
This would give the Reserve Bank a month to signal its intentions and to remove the "period of stability" line from its monetary policy decision release.
Plotting the chart of implied yields from market determined prices across a range of contract expiry months shows just how much sentiment has shifted since the first week of October, with the implied yield curve now once again taking on a markedly inverted shape.
The market determined price of October contracts was trading at just 97.81 implying a yield of 2.19 percent on Friday.
In short, the cash rate looks to be heading towards 2 percent.