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RBA Dated OIS Still Expecting A Pause in April

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Yesterday’s stronger employment data when combined with the robust NAB Business Survey should have encouraged the market to move closer to a 25bp hike from the RBA in April. RBA Governor Lowe had explicitly cited both releases as important inputs to next month's policy decision. AU STIR however seemed to dismiss that message, maintaining its pricing for an end to the tightening cycle with 38bp of easing by year-end.

  • Global banking concerns appeared to be the most likely reason yesterday. Today, however, with global STIR marked substantially higher on the back of risk-on sentiment and a 50bp hike from the ECB, the explanation is less obvious.
  • RBA dated OIS has scaled back easing expectations for this year by 18bp to 20bp, but the market still believes the peak in the cash rate has been seen with no change at the April meeting.
  • For comparison, U.S. and NZ STIR still have respectively 15bp and 25bp of tightening priced.
  • The fact that RBA Governor flagged the possibility of pause is likely to have weighed on market pricing for April, although he did cite data dependency and the data has been strong.
  • Maybe it is the RBA's performance as a serial undershooter of OIS forward pricing that has the market convinced that a pause is on the cards.

Figure 1: RBA Cash Rate Vs. OIS 6M1M (led 6M)

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Yesterday’s stronger employment data when combined with the robust NAB Business Survey should have encouraged the market to move closer to a 25bp hike from the RBA in April. RBA Governor Lowe had explicitly cited both releases as important inputs to next month's policy decision. AU STIR however seemed to dismiss that message, maintaining its pricing for an end to the tightening cycle with 38bp of easing by year-end.

  • Global banking concerns appeared to be the most likely reason yesterday. Today, however, with global STIR marked substantially higher on the back of risk-on sentiment and a 50bp hike from the ECB, the explanation is less obvious.
  • RBA dated OIS has scaled back easing expectations for this year by 18bp to 20bp, but the market still believes the peak in the cash rate has been seen with no change at the April meeting.
  • For comparison, U.S. and NZ STIR still have respectively 15bp and 25bp of tightening priced.
  • The fact that RBA Governor flagged the possibility of pause is likely to have weighed on market pricing for April, although he did cite data dependency and the data has been strong.
  • Maybe it is the RBA's performance as a serial undershooter of OIS forward pricing that has the market convinced that a pause is on the cards.

Figure 1: RBA Cash Rate Vs. OIS 6M1M (led 6M)

Keep reading...Show less