RBC: Pay Short-Dated AUD OIS

RBC write “our base case is for the RBA cash rate to peak at the current 3.85%. However, this largely reflects our sense that the RBA remains reluctant to push rates much higher as it continues to protect as much of the labour market gains of the last few years as possible rather than the macro risks and outlook.”

• “Amid a shifting global backdrop that continues to suggest very tight labour markets and still elevated inflation, the risk remains skewed towards the market pricing in a higher terminal rate. The information from the recent RBA FOI request and discussion around nominal neutral and a higher NAIRU also argues for a more restrictive policy stance.”
• “While recent key domestic data have not surprised to the upside and may well buy the RBA some breathing room at the upcoming June meeting, the risk of further tightening at the following 2 meetings is much higher.”
• “We look to express this view via paying 3m and/or 6m OIS. We reflect this in our trade recommendations as paying an equal weighted average of both 3m and 6m at 3.98%.”