On The Defensive On Global Impulse, RBA Set To Hike Again

Monday’s continued cheapening in core global FI markets has pressured ACGBs in early Tuesday trade, with the major futures contracts showing below their respective post-Sydney bases, leaving YM -11.0 & XM -12.0. Wider cash ACGB trade sees 9.5-12.0bp of cheapening, with the 7- to 12-Year zone leading the weakness on the curve.

• Bills sit 4-12bp cheaper through the reds, bear steepening.
• A 25bp hike is now fully priced into the RBA dated OIS strip (assuming a constant differential between the cash rate target and effective cash rate post-hike), while terminal cash rate pricing has ticked up to ~3.75%
• Ahead of today’s RBA decision we point you to our full preview of the event, available here: https://roar-assets-auto.rbl.ms/files/51118/RBA%20Preview%20-%20February%202023.pdf . As a reminder, the RBA is widely expected to hike the cash rate target by 25bp to 3.35% given the elevated Q4 CPI data that showed an increase in domestically-driven inflation pressures. Thus, the focus is likely to be on any change in tone of the statement and indications of how the RBA's economic forecasts have evolved.
• Elsewhere, monthly trade balance data is due, while the weekly ANZ-Roy Morgan consumer confidence reading revealed that “consumer confidence experienced its biggest weekly fall since early August 2022. Confidence about current and future finances fell sharply, perhaps sparked by concerns about the extent of cash rate rises after the Q4 inflation print. Household inflation expectations drifted up but are still lower than expectations during the final three months of 2022.”