RBA Day, 50 Seems The Most Viable Option

Bearish impulses on the likes of the German and UK government bond curves applied some modest pressure to Aussie bond futures in overnight dealing, although the losses in Aussie bond futures were very limited, leaving YM -1.5 and XM -1.0 shortly after the Sydney open, while Bills run 1 to 8bp cheaper through the reds, bear flattening.

• Final S&P services and composite PMI data is due shortly, but the RBA decision provides the headline domestic risk event today (see our full preview here).
• The analytical community is unanimously behind the idea that the RBA will deliver further tightening at its July meeting, with 25 of the 26 surveyed by BBG looking for a 50bp hike and just one looking a 75bp step. The STIR space currently prices in ~45bp of tightening come the end of the Bank’s July meeting, which equates to an 80% chance of a 50bp hike. Domestic data flow & recent comments from Governor Lowe indicate that a 50bp hike will be implemented. Expect the Board to reiterate its guidance that it “expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead.” Q2 CPI data (due 27 July) is set to provide the next major yardstick when it comes to assessing the velocity of any future RBA tightening,