AUD Swaps: Light 2-10y offers before data; RBA seen hiking next week

AUD swappers have turned their attention to PPI and retail sales although there has been light receiving interest. The RBA might still hike next week.

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  • RBA seen hiking in August; BNPP likes paying RBA OIS

  • Light 2-10y offers before PPI and retail sales


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RBA seen hiking in August; BNPP likes paying RBA OIS

AUD bond futures extended gains today, as weaker-than-expected inflation data continued to drive better appetite for safe-haven assets.


However, not all players were ready for the end of the tightening cycle. Indeed, Barclays still forecast one more interest rate hike in its recent strategy piece released on Wednesday. It said the RBA's July decision statement was somewhat dovish compared with the June statement, and signalled that the RBA is close to the end of the hiking cycle. However, the central bank also said some further tightening "may be required". Despite softer inflation, Barclays thinks the meeting next week is the most likely time for it to raise rates though it also acknowledges the risk of a delay to a September hike.


BNPP echoes the above view. The bank read RBA’s May minutes that services inflation was the main reason for resume rate hikes after April pause. It also noted that although headline inflation clearly decelerated according to the latest data print, services inflation continued to accelerate to 6.3% year-on-year. This led BNPP to form its opinion that the RBA would hike rate by 25bps at the August policy meeting after the Q2 CPI print. The bank believes that there is a potential for paying August RBA OIS at 4.15% with a target at 4.32%, stopping out it the RBA does not hike on August 1.



Light 2-10y offers before PPI and retail sales

At mid-day 3-year bond future was up 6-ticks at 96.17, and the 3s/10s futures curve was 1.5bps steeper at 13bps.


Dealers said the market has turned its attention to the PPI and retail sales data which will be released tomorrow. Nevertheless, there was receiving in 2-year at a few basis points lower before lunch break. 10-year changed hands between 4.415% to 4.42%, down from yesterday’s close of around 4.455%.


EFPs were mixed. 3-year was up 0.5bp to 34.75bps, 5-year unchanged at just below 42.5bps and 10-year down 0.25bp at 44.5bps.