RBA hikes to 4.60%

• Despite yesterday’s hike, the expectation for follow up hikes have eased. The RBA’s tone shifted during the press conference, where Governor Bullock acknowledged that the cash rate is a blunt instrument but made clear the RBA is trying to use it carefully, limiting damage to the labour market while still bringing inflation down as quickly as possible.
• This has seen the risk of an imminent follow-up hike fade, with only a 37% chance of a November move now priced and the next hike not fully priced until March, while the terminal cash rate expectation has eased roughly 10bps from just over 5% to 4.95%. With 5 year swap down 11bps and BBSW expected to set a little lower today, many investors are questioning whether peak rates are now in view and are looking to lock in duration.
• Today’s CPI release will be closely watched, with inflation having now sat above the midpoint of the RBA’s target band for almost 5 years. Headline CPI is expected to rise 0.5% m/m and 4.1% y/y, up from 3.5% previously and more than a full percentage point above the top of the band, with trimmed mean expected at 3.6%.
• Internationally, long-dated bond yields remain elevated, with the US 10yr around 5.23% and the 30yr 2bps higher at 5.57%, after reaching a new post-2002 high of 5.62%.