J.P.Morgan: Receive Nov ’22 RBA OIS Vs. Paying Sep ’22 FOMC OIS

In J.P.Morgan’s view, “the inflation impulse in Australia is indeed less explosive than the U.S. and potentially more durable, which could see the cycle extend for some time. Still, part of that durability requires the RBA to ensure that wages and household income have sufficient momentum before hiking. Tethering the RBA so tightly to the Fed’s timeline for 2022 is therefore unreasonable. We receive 25K DV01 of Nov ’22 RBA OIS at 0.886% vs. paying 25K DV01 Sep FOMC OIS at 1.027%, a spread of -14.11bp. This is admittedly mostly an RBA trade, but with outright protection in case the Fed speeds up. We see value in extending the RBA leg from October to November, since the meeting spread is at a significant +17bp, whereas conditional on the RBA having already hiked 3 times by October (i.e what’s priced), the informational value of another inflation print and SoMP forecast communications accrued in the gap is unlikely to be very high. More likely, if hikes are that advanced the board has already been convinced by global developments, or maybe local wage dynamics, and another quarterly wage number is not due until after the November meeting.”