Cheaper But Off Worst Levels, Historic RBA Meeting Decision Due

ACGBs (YM -3.0 & XM -4.0) are holding cheaper but off the Sydney session’s worst levels ahead of today’s historic RBA Board Meeting, the first in the RBA’s new era that stems from a review of the central bank handed down last year.

• The RBA is unanimously expected (Bloomberg consensus) to leave rates unchanged at 4.35% at its February 6 meeting given lower-than-projected Q4 CPI and activity data have been soft since the last meeting. But it is likely to be too soon to remove the tightening bias given still elevated domestic price pressures and a tight labour market. See the MNI preview here.
• Meanwhile, Q4 real retail sales were stronger than expected rising 0.3% q/q but Q3 was revised down 0.3pp to -0.1% and Q2 to -1.1%. Discounting around the end of the year simultaneously encouraged spending and weighed on prices.
• This data may mean household consumption in the Q4 national accounts released on March 6 may be stronger than the rest of 2023.
• Cash ACGBs are 2-4bps cheaper, with the AU-US 10-year yield differential 3bps tighter at -1bp.
• Swap rates are 3-5bps higher, with the 2s10s curve steeper.
• The bills strip has bear-steepened, with pricing flat to -3.
• RBA-dated OIS pricing is 2-4bps firmer across meetings beyond June. The market indicates a 0% likelihood of a 25bp hike or cut today.