Westpac On Recent RBA Pricing Dynamics

Westpac are “encouraged by the more nuanced RBA analysis of wages in the context of their policy decision.” They believe it “keeps alive” their August forecast for a 15bp hike in the cash rate target.

• They note that “the market is even more confident in that view. While Dr Lowe’s rhetoric removed hikes from the May/June meetings, the mention that it was “plausible” that a hike could be delivered saw the forward cash pricing curve twist around the Sep/Oct meetings, with almost a further 25bp rate hike pushed into the profile by Q123. While we are confident that our August call will eventually prevail, the market has responded strongly to the U.S. outlook. There is an ongoing collective market confidence that faster (and/or larger) rate hikes from the Fed will increase the pressure on the RBA to do the same. So we do not think the forward cash curve pricing will shift much in coming weeks.”