Will The RBA Pull The Trigger?

The late NY move away from session lows in U.S. Tsys dragged Aussie bond futures off of worst levels in late post-Sydney dealing. That leaves YM -2.5 and XM -3.5 in early Sydney trade, after both contracts lodged fresh cycle lows overnight. Bills are unchanged t0 8 ticks lower through the reds.

• Focus is squarely on today’s RBA decision. The much firmer than expected Q122 CPI print has tilted the scales towards a cash rate hike at the end of the meeting, The MNI markets team has slight bias towards a 15bp cash rate target hike at this meeting, although we concede that this is a close call. We don’t see the impending Federal Election as an impedimentary factor to tightening. The Bank’s guidance paragraph will be monitored for views re: the velocity of additional rate hikes (assuming a 15bp rate hike is deployed). There is a high bar for the RBA to provide an outright hawkish surprise vs. already aggressive market pricing of future tightening. The RBA will also make a decision on what it intends to do from the proceeds of maturing bonds held under the bond purchasing schemes employed as part of its response to COVID-19. We expect the Bank to outline a passive run off of maturing bonds held on its balance sheet. See our full preview of the decision here.