Prashant Newnaha, Senior Asia-Pacific Rates Strategist, TD Securities provides a detailed analysis on how to trade the Reserve Bank of Australia (RBA) interest rate decision due on Tuesday at 0430 GMT.
Key Quotes:
“TD expects the RBA to cut the cash rate tomorrow to 1%. OIS is 65% priced for this outcome. Bloomberg poll – 18/26 (70%), Reuters poll – 29/41 (70%).
RBA forecasts assume 2 cuts. The Gov had a chance to push back on pricing for a July cut of ~70% ahead of his 20th June speech. He didn’t and he said “the most recent data – including GDP/Labour mkt data – do not suggest we are making any inroads into the economy’s spare capacity”. So why wait? For Jun Employment – 18th July, Q2 CPI – 31st July?
The RBA has refrained from inserting a bias when the cash rate has been cut. Gov Lowe’s speech tmrw at 7.30pm AEST in Darwin is likely to be more influential.
We rec Jul’19 OIS/pay 3yr Sep Futs @ -14bp (3yr 99.06). Target -5bp, stop -25bp, risk A$10k/bp.”
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