/STIR: McCrann Flags Potential August RBA Cut, Post-RBA Dovish Repricing Holds

{AU} RBA watcher Terry McCrann writes “a low quarterly inflation number AND further serious weakening in jobs and the economy more broadly, could very well trigger a “surprise” rate cut at the August meeting. Although by then it should no longer be a “surprise”; either way.”

• No real reaction in {AU} rates in the time since.
• YM futures had already marginally extended on post-RBA gains in early overnight trade. That contract is +12.0 vs. pre-RBA levels.
• In the {AU} short end, OIS is pricing ~4bp of tightening through the Aug meeting and ~4.5bp through the Sep decision, with the latter representing the current peak of market implied rates. Aug meeting pricing softened by ~8bp in the wake of the RBA meeting.
• A quick reminder that a weekend article from AFR RBA watcher Kehoe and Q1 inflation data promoted some hawkish repricing ahead of the event.
• Our preview suggested that “there is some chance that the tightening bias will be reinstated following the higher-than-expected Q1 CPI data, but we believe that is unlikely.”
• Governor Bullock said that both a rate hike and holding were discussed at the May meeting and the Board hopes that it won’t have to hike but it will if it has to. Currently the Board sees risks as “reasonably balanced” but needs to monitor upside inflation risks, especially as the costs of an overshoot exceed those of an undershoot. Policy is restrictive and the insurance taken out in November has meant the RBA can watch and wait.
• Expect our full review during Wednesday’s Sydney session.