RBC: Receive 1Y1Y Vs. U.S.

RBC recommend receiving Australian 1Y1Y swaps vs. U.S. at current levels with a target of -20bp, stop at 6bp.

• "Markets have moved aggressively to price in RBA hikes following a more hawkish sounding Fed last week, and sequential strong Australian labour force reports. We think RBA pricing has gone too far in the near term however, with the ~2 hikes fully priced by mid-2023 looking too aggressive. We don't expect any hikes from the RBA through to end-2022 (our current forecast horizon), and even allowing for a chance of hikes in 2023, we think this pricing doesn't capture enough of the risk that wage/inflationary pressures in Australia continue to lag."
• "This contrasts sharply with our U.S. view that Fed rate hikes beginning in 2022 are a very realistic proposition. Hence, we think that while markets have pulled AUD swaps almost in line with the USD curve, this is unjustified as there's likely to be a large policy lag from the RBA. We prefer to receive here at the front end of the curve to keep the trade very policy-rate focused, keeping it focused on the timing of the start of future rate-hike cycles."