ANZ rates strategists Martin Whetton and Katie Hill on market pricing for the Reserve Bank of Australia:
- Australian 1 year RBA OIS pricing has moved to price in rate hikes today for the first time since late 2014
- Market pricing has 2bp of hikes expected in 12 months
- This contrasts sharply with the average of around 30bp of cuts priced in over the last year and the 10bp priced in recently which we estimate to be neutral in a rate cutting cycle
- Term rates markets have sold off heavily in recent weeks as the global inflation pulse has lifted and as a result of the revision to market expectations post the US election
- With market pricing shifting without any significant change in RBA rhetoric (though yesterday's minutes could be construed as less dovish), we believe it will be difficult to justify significant sustained rate hike pricing in the near term. However we expect term rates to rise further and this could drag pricing higher
(bolding in above is mine ... I agree, after today's weak wages data for example)
