A Quick Look At RBA Pricing

A combination of the much firmer than expected domestic retail sales data and wider central bank repricing impetus in the wake of the hawkish overtures delivered by Fed Chair Powell and various ECB governing council and executive board members at and/or after Jackson Hole allowed market pricing of the terminal rate of the RBA’s current tightening cycle to extend higher on Monday.

• Markets continue to price a 50bp hike at the RBA’s September meeting with near certainty (47bp of tightening is currently priced), while the market pricing of the terminal rate briefly shifted above 4.00% yesterday (for the first time since June) before paring back to ~3.95% at typing.
• Note that the market now looks for the terminal rate to be attained in August, with the higher for longer mantra extending into RBA pricing.
• No individual RBA meeting currently sees more than 50bp of tightening priced, per RBA dated OIS markets.
• The labour market is tight, the housing market has started a correction and consumer spending remain strong. The interaction of these 3 factors is key.
• The RBA has already noted that “a key source of uncertainty continues to be the behaviour of household spending,” subsequently flagging a focus on consumer confidence, the impact of higher interest rates and inflation on household budgets, financial buffers and the ability to find jobs/obtain more hours of work.