Market sentiment shifts towards a RBA Hike

• Markets remain uneasy as the Iran conflict continues to dominate headlines and keep energy prices in focus. US CPI printed 2.4% y/y, broadly as expected, and had limited impact as attention stayed on the potential inflation effects of higher oil prices.
• The story locally is the sharp shift in the RBA outlook. In the last 24 hours, a growing number of major banks and economics teams have moved to call for a rate hike at next Tuesday’s meeting, marking a clear shift in messaging.
• This follows RBA Deputy Governor Andrew Hauser’s recent hawkish comments on a podcast, pointing to strong growth, a tight labour market and inflation still running above target – now compounded by the threat of rising energy costs in the future.
• Rate markets have responded quickly, now pricing over a 70% chance of a 25bp move next week, with market participants increasingly expecting a consecutive hike in May.
• Australian bond yields have moved sharply higher alongside the repricing, with 3-year futures rising from around 4.45% to near 4.60%, while the 10-year yield has pushed above 4.95%.