Speculation is high that the Reserve Bank of Australia (RBA) will be the next central bank to ease monetary policy at its meeting this week following a month of surprise policy changes across the globe.
January saw unexpected loosening measures from a handful of central banks including Denmark, India and Singapore against a backdrop of increasing deflationary pressures as crude oil prices continue their descent.
"Judging by price action in the market, there is a real belief the RBA are going to join New Zealand, Europe, Denmark, Switzerland and Canada in easing policy," said Chris Weston, chief market analyst at IG in a note last week, adding that swaps markets are now pricing a 65 percent chance of a rate cut.
The RBA has held rates at 2.5 percent since August 2013.
The case for a cut
Many analysts expect the RBA to announce a 25 basis-point interest rate cut at Tuesday's policy meeting to tackle 6 percent unemployment and sliding iron ore prices, one of the country's biggest exports.
Comments by Australian journalist Terry McCrann last week that a rate cut is "almost certain" heightened expectations, sending the Australian dollar to fresh five-and-a-half year lows at 77.22 U.S. cents on Friday. McCrann, a long-time RBA watcher, reasoned that the RBA will forecast inflation to be lower than the mid-point of its 2-3 percent target range, opening the way for further easing.