Westpac: How Quickly Will Vax Optimism Shift The Market Narrative?

Westpac note that "the uncertainties and potential economic damage from the current lockdowns remains the key to price action ahead of next week's RBA. In our view, expectations of a post lockdown V-shaped rebound are too far in the future to tilt the narrative for rates markets much at the moment. However, there is accelerated progress toward the goal of 70% of the eligible population being double-dose vaccinated in order to trigger the "transition phase" out of the current lockdown situation. Current trends suggest that will be met by late October and the 80% "consolidation phase" achieved a few weeks later, in November. While both those target dates are sometime in the future, we are beginning to question whether the recent penalty applied to both the currency and rates markets for the initial tardiness in the vaccination roll-out and the hit to growth from lockdowns may soon run its course."

• "The RBA's own expectation of what the evolving circumstances imply is obviously a crucial catalyst for shifting market expectations. That will be the key focus ahead of next week's Board meeting. At present, we see current prices as reflecting an expectation that they will decide to postpone their tapering of policy accommodation, however Westpac's view of an even greater policy response would certainly provide a headwind to higher yields and a continuation of the recent Australian bond market outperformance on a cross market basis."