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27 Mar 2015
Market pricing a 60% chance of an RBA rate cut in April - Deutsche Bank
FXStreet (Bali) - Deutsche Bank Market Research Team shares their insights into the potential RBA monetary policy outcome on April 7th, with the market currently pricing a 60% chance of an RBA rate cut.
Key Quotes
"The market is pricing a 60% chance of an RBA rate cut in April. Of the nine distinct rate cut decisions over this easing cycle, five have come in the month of an SMP and two have followed a decision to ease in an SMP month."
"Only two have come outside this pattern. While this analysis can’t rule out a move in April, we think the pattern is instructive of the RBA’s preferred approach."
"With this in mind and given the current level of pricing we would short the April-IB contract at its current level, while going long the May-IB contract to hedge against event risk and the chance of an April rate cut."
"We remain of the view that by the end of the year 10Y yields both in the US and Australia will be higher than currently, but with the 10Y ACGB/UST spread tighter."
"We are not yet inclined to go short duration, however. And with the AUD front-end still very fully priced for RBA rate cuts we don’t think the 10Y spread is at a level that favours going long the 10Y ACGB against the 10Y UST."
Key Quotes
"The market is pricing a 60% chance of an RBA rate cut in April. Of the nine distinct rate cut decisions over this easing cycle, five have come in the month of an SMP and two have followed a decision to ease in an SMP month."
"Only two have come outside this pattern. While this analysis can’t rule out a move in April, we think the pattern is instructive of the RBA’s preferred approach."
"With this in mind and given the current level of pricing we would short the April-IB contract at its current level, while going long the May-IB contract to hedge against event risk and the chance of an April rate cut."
"We remain of the view that by the end of the year 10Y yields both in the US and Australia will be higher than currently, but with the 10Y ACGB/UST spread tighter."
"We are not yet inclined to go short duration, however. And with the AUD front-end still very fully priced for RBA rate cuts we don’t think the 10Y spread is at a level that favours going long the 10Y ACGB against the 10Y UST."