Goldman: Inflation Responses Underscore Differentiated Risks Down Under

Goldman Sachs note that “Q422 inflation releases out of Australia & NZ drove contrasting moves in the respective rates markets. “

• “Our economists see the higher starting point for trimmed mean inflation likely keeping pressure on the RBA to continue raising rates. RBA meeting OIS steepened the near-term pace and priced to a higher terminal rate and a relatively parallel selloff in points beyond the peak in the forward curve. This reaction makes sense to us, given the bank's steady 25bp hiking pace. Markets may be waiting for confirming data to readjust the terminal rate up.”
• “In New Zealand, Kiwi markets trimmed the near-term path for the RBNZ and incrementally added to mid-23/YE23 inversion. Our economists continue to lean towards a 75bp move by the RBNZ in February given momentum in non-tradeables inflation and labor market tightness, but see a meaningful chance of a smaller 50bp increment. The RBNZ’s larger increments are more supportive of near-term right tail risks around the policy rate path, with markets likely to retain some potential that policy rates rise to a higher peak until a slowdown in the pace of rate hikes becomes more apparent.”