Plenty Of Vol. As The RBA Deploys Ambiguous Guidance

The space rallied hard on the back of the RBA decision, with the Bank's relatively ambiguous guidance re: the future of the cash rate disappointing when compared to the aggressive hawkish pricing already embedded within the markets.

• The Bank pointed to underlying inflation within its forecast band across the forecast horizon, although it was careful to stress that "the Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. This will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently. This is likely to take some time. The Board is prepared to be patient, with the central forecast being for underlying inflation to be no higher than 2.5 per cent at the end of 2023 and for only a gradual increase in wages growth."
• Nonetheless, markets have proven they are willing to test the RBA's thesis in the past, and with underlying inflation seen within the Bank's target over the forecast horizon, bond futures have moved back towards pre-decision levels, leaving YM +0.5, with XM -5.0.
• The yield on ACGB Apr-24 (the bond previously targeted by the Bank's YCT mechanism) shed ~4bp on the decision, before cheapening, with the yield now ~3bp above pre-decision levels.
• AUD 1Y/1Y rates narrowed by ~13bp from pre-decision levels at one point, before moving back from session lows, last printing ~1.53%.