According to the latest cash rate futures, the market is now pricing in a 67% probability of a rate cut to zero by the Reserve Bank next week.
While I'm not 100% certain on a cut to zero, I suspect a cut to 0.1%, like Westpac Banking Corp (ASX: WBC) is predicting, could happen.
In light of this, if you haven't done so already, I think now would be the time to consider switching funds out of term deposits and into ASX dividend shares.
But which dividend shares should you buy?
Commonwealth Bank of Australia (ASX: CBA)
Rather than putting your money in its term deposits, I would sooner buy this banking giant's shares for the dividends. Especially following such a sharp decline in the CBA share price in 2020. At present the bank's shares are trading 29% lower than their 52-week high. I think this has left them trading at a very attractive level for patient investors.
While there is no doubt that the pandemic will hit the big four banks hard, I'm confident the provisions CBA has made are sufficient. In light of this, I think investors should look to the future, which is becoming a lot more positive following the relaxing of responsible lending rules. Combined with tips for a rebound in the housing market next year, I suspect the bank could be over the worst of its issues now. Based on current trading conditions, I expect a fully franked yield in the region of 4.5% in FY 2021.
Wesfarmers Ltd (ASX: WES)
I think this conglomerate could be a great option due to my belief that it is well-placed for growth over the coming years. This is thanks to the quality of its diverse portfolio of businesses and particularly its Bunnings business.
While the pandemic is creating a lot of uncertainty, I'm optimistic that government stimulus and the relaxing of responsible lending rules will support the home improvement market and allow Bunnings to maintain its positive form in FY 2021. In light of this, I currently estimate that Wesfarmers will pay a fully franked dividend of ~$1.50 per share in FY 2021. Based on the latest Wesfarmers share price, this equates to an attractive fully franked 3.3% dividend yield.
