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(Bloomberg) -- Traders are winding back bets on aggressive monetary easing by Australia in a cascading effect from the US and China agreeing to temporarily lower tariffs on each other’s products.

Money market pricing now implies the Reserve Bank will only cut interest rates three times this year, including one next Tuesday. Just four weeks ago, when US President Donald Trump’s massive tariffs on China threatened to send the world economy into a tailspin, markets were anticipating at least five RBA cuts with a decent chance of a sixth.

That would have taken the cash rate below 3%, from 4.1% now, even though Trump had imposed a minimum “reciprocal” tariff of 10% on Australia. Traders expected that the RBA would be forced to slash borrowing costs if China’s demand for Australian products slumped or in the event of a global recession.

China is Australia’s largest trading partner for goods exports, which were worth 6.6% of nominal gross domestic product in 2024, with iron ore accounting for almost 60% of Australia’s total goods exports to the Asian giant.

Money markets pared bets on RBA easing overnight after Washington and Beijing announced that they had agreed to a 90-day window for negotiations on tariffs. Yields on three-year bonds rose early Tuesday to their highest since April 3.

“This is positive for Australia as it further lessens the risk of global slowdown and in particular any localized slowdown in China that may hit our economy more directly,” said Alex Joiner, chief economist at IFM Investors in Melbourne. “This leaves the RBA to focus on the Australian economy and there is currently no emergency here.”

The reduction in the scale of rate bets is a vindication of RBA Governor Michele Bullock’s cautious response to the wave of tariff announcements emanating from the Trump administration. Australian policymakers have steered clear of providing any forward guidance in recent times, citing growing uncertainties.

RBA officials have also previously pushed back on market pricing for a “sequence” of cuts, saying inflation will take time to return to the 2.5% mid-point of the central bank’s 2-3% target due to Australia’s weak labor productivity and a tight labor market.

Figures this week will show unemployment held at 4.1% in April, economists reckon. Australia’s core inflation slipped into the RBA’s target band for the first time in more than three years, according to a report released last month.

These data will feed into the RBA’s quarterly update of forecasts to be released alongside the rate decision on May 20. The RBA’s outlook is based on a market-implied path for rates. The Statement on Monetary Policy and the board’s rate decision release may also include commentary on US tariffs.

Yet some economists still reckon that Trump-led uncertainty means the RBA will err on the side of deeper cuts.

“While the market has moved overnight to suggest the global trading environment has moved past peak tariff risk, heightened trading uncertainty is likely to remain,” said Josh Williamson at Citigroup Inc. who sees the RBA’s cash rate ending the year at 3.1%, implying four quarter-point cuts.

“President Trump retains unilateral power to adjust tariff rates and coverage via Presidential decree, underlining the potential for ongoing business uncertainty.”

Australia’s expansionary fiscal policy is another reason why investors see a shallow RBA easing cycle, according to economists at Bank of America Corp. who met with more than 25 investors in Singapore and Hong Kong last week.

“Investors generally shared our view that the market is pricing in too many RBA rate cuts,” Nick Stenner, who worked at the RBA until 2024, wrote in a note on Monday. They see “a possible shift to a more expansionary fiscal stance under a majority Labor government.”