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Slightly Richer After The RBA Leaves The Cash At 4.10%, Q2 GDP Tomorrow

AUSSIE BONDS

ACGBs (YM flat & XM -3.5) sit slightly stronger after the RBA leaves the cash rate at 4.10%, as widely expected. The market gave a 25bp hike today less than a 5% chance. Today’s RBA statement highlights are:

  • Inflation has passed its peak but remains high, expected to persist for some time. Goods price inflation has eased, but service prices and rent continue to rise.
  • Labour market conditions remain tight, though easing slightly, with a gradual rise in the unemployment rate expected. Wages have increased but remain consistent with the inflation target.
  • The central focus is on returning inflation to the 2–3% target range and sustaining medium-term inflation expectations. There are uncertainties, especially in services price inflation and household consumption.
  • Further monetary policy tightening may be necessary, depending on data and risks. The goal is to return inflation to target.
  • Cash ACGBs are 1bp richer after the decision and flat to 3bp cheaper on the day. The AU-US 10-year yield differential is -9bp.
  • Swap rates are 1-3bp higher on the day, with EFPs slightly tighter.
  • The bills strip is little changed on the day, with pricing -1 to +2.
  • RBA-dated OIS pricing is 1-2bp softer across meetings after the RBA decision.
  • Tomorrow the local calendar sees Q2 GDP. The AOFM also plans to A$700mn of the Dec-34 bond.
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