Firmer As RBA Tweaks Guidance Passage To Stress Optionality

The inclusion of the language surrounding the tightening cycle being on no pre-set path in the RBA’s guidance paragraph, shift higher in its inflation track and mark lower in GDP growth expectations has provided a dovish feel to the statement that accompanied the widely expected 50bp rate hike from the Bank. That has allowed the ACGB space to go bid post-decision as YM & XM surged to fresh session highs, with the former +11.0 & XM +13.5, a touch shy of best levels. Cash ACGBs are 1bp cheaper to 10bp richer across the curve, twist flattening, with an element of elongated weekend catch up evident in cash ACGB levels after the NSW holiday observed on Monday. Bills run 6-11bp richer through the reds as a result also just shy of best levels. Note that the OIS strip has unwound the best part of 10bp of tightening when it comes to the Bank’s September meeting, with a touch over 30bp of tightening priced in for that gathering. Further out, ~10bp of tightening has also been taken out of RBA December meeting-dated OIS, which now sits at ~3.00%, with pricing surrounding the terminal cash rate also pulling lower to just below 3.20% (foreseen in February).

• Swings in broader risk appetite drove price action earlier in the session, with the Asia-Pac region setting up for U.S. House Speaker Pelosi’s expected trip to Taiwan.
• Mixed local data, in the form of housing finance and building approvals, had no tangible impact on the space.
• Looking ahead to tomorrow, it will be the Q2 retail sales volumes data and A$800mn of ACGB Nov-32 supply that headlines the domestic docket.