TD on the mortgage rate hikes by three of the four major Australian banks
This in brief from the note:
- Three out of the four major retail banks lifted their key standard variable rate (SVR)
- We cannot rule out more SVR hikes
- A trigger for even lower OIS pricing needs the RBA to drop the phrase "the next move is up" for the cash rate, so the market will be hyper-sensitive to RBA-speak (more than usual)
For the AUD …. this a little more detail from the note:
- we think it is time to start tipping your toes back into AUD - at least on some of the major crosses.
- We like the rotation to long AUDCAD exposure over the near-term alongside a tactical bounce in AUDCHF on a contrarian valuation trade. On the former, we think the marginal news flows should start to sour for CAD, reflecting the fact that the BoC is priced to perfection and CAD positioning is relatively stretched. The valuation discount on CAD is also much lower than AUD.
- For the other non-USD cross, our HFFV model shows AUDCHF is the cheapest cross in the G10, which runs almost 7% undervalued. It is a general expression of risk appetite but cross also trades cheap to EMFX and US equities.
- For AUDUSD, we like the risk/reward of fading downside towards $US0.71. A re-pricing of the risk premium would argue for a push towards $US0.75 over the coming weeks. We don't think this setup would represent a bullish development for it but rather a re-coupling with short-term drivers.
- We still think AUD (alongside the rest of the dollar bloc) should underperform reserve currencies like EUR and JPY over the coming months, but think the current discount in the price offers an attractive tactical trade.
