Westpac Flesh Out The Post-RBA Landscape

Westpac write “the rates and bond markets were relatively quiet ahead of the RBA meeting, with price action largely consolidating the overnight changes. However, that all changed after the hike with the market focusing on the shift away from “increases” over the “months ahead” to merely the Board “expects that further tightening of monetary policy will be needed”.”

• “We suspect that most of these initial shifts have further to run given the significant shift in the Governor’s language and the view that the “monthly CPI indicator suggests that inflation has peaked in Australia.” There is a real sense that the Board is very close to pausing, perhaps even as early as next month. So, the concept of further hikes being a meeting-by-meeting proposition will remain central to the trading rhythm and risk reward assessment around future data releases. This will push the AU/U.S. 10-Year spread even further inverse, with the tactical level in which to re-enter narrowers now around -15bp. We also expect the curve (3/10-Year futures spread) to steepen back up to the 40bp level over coming weeks.”