All Eyes On The RBA Decision

Ahead of the RBA decision ACGBs are basically unchanged (YM -1.0 & XM -0.5) despite the softer lead from U.S. Tsys. U.S. Tsy yields were 2-3bp higher across the curve in NY trade as the focus shifted to Fed Chair Powell’s semi-annual testimony to Congress. Cash ACGBs open with yields flat to 1bp higher. AU/US 10-year yield differential is -3bp at -20bp, its lowest level since mid-December.

• A subdued open for swaps as well with rates and the 2s10s curve unchanged, and EFPs slightly wider.
• Bills are essentially flat through the reds.
• A 25bp hike from the RBA today is almost fully priced with RBA-dated OIS giving it a 92% chance. Beyond the March meeting, however, the market is less certain with a 79% chance of a 25bp hike in April priced and a cumulative ~30bp of tightening priced by May (assuming a 25bp move is delaivered today). Terminal rate pricing is around 4.14% versus its recent peak of 4.35%.
• Uncertainty in the market revolves around the possibility that the RBA could change its policy guidance in the decision statement today, in response to the recent downside data surprises, which included Q4 WPI, Q4 GDP and January monthly CPI. RBA Governor Lowe speaks at the AFR Business Summit tomorrow.
• Separately, trade balance data for January is slated for today and is expected to show a slightly wider surplus, in line with higher commodity prices.