AUD Swaps: RBA to hike 25bps; Light 10y offers; EFPs seen tighter

The market largely believes 25bps worth of RBA rate hike tomorrow. 10y saw light receiving before mostly 2-way interest. ANZ sees tighter 10y EFP.

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  • RBA to hike 25bps tomorrow

  • BofA eyes AUD/USD box flattener; ANZ sews flatter 1s/2s swaps

  • Light 10y offers before 2-way interests; EFPs seen tighter


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RBA to hike 25bps tomorrow

The RBA is due to meet on Tuesday for the last monetary policy meeting this year. The market largely expects the central bank to hike rate by another 25bps to bring the new benchmark rate to 3.1%, although there is also roughly a 25% chance of a pause.


In a recent research piece, Bank of America said it has pencilled in hikes until May 2023 when it reaches 4.1%. However, it expressed its view that Australia continues to enjoy meaningful protection from downside risks, as a long period of low unemployment is likely partly offset the dampening effect of rising loan payments on consumer demand, and that China is like to gradually reopen in 2023 and could boost Australian GDP.



BofA eyes AUD/USD box flattener; ANZ sews flatter 1s/2s swaps

The bank maintained a view that the 2s/10s curve is too steep relative to other developed markets and said it continued to like a box flattener (AUD steepener vs USD flattener).


ANZ, on the other hand, said it would hold an AUD IRS 6m forward 1s/2s flattener to reflect the risk that terminal RBA pricing moves higher but brings with it increased pricing of cuts.



Light 10y offers before 2-way interests; EFPs seen tighter

Trading in swaps has been subdued ahead of the RBA decision. A dealer reported light trade flows in 10-year, backed mainly by slightly better receiving in earlier trading. Trades were down to a basis point lower of 3.9475% before lunch break. In the afternoon session, there was mostly been two-way interest when it traded little changed from previous close. 10-year EPF was a basis point tighter at 59.25bps, and ANZ has its biases towards swap spreads narrowing, but said this may take time as corporate hedging flows slow. Other key EFPs are as follows: 3-year 2bps tighter at 50.5bps, 5-year down 2.75bps to 69.25bps.