Preview: RBA could soon tweak the yield-curve control target

Someone get George Soros on the line

RBA logo

One of the great all time trades was George Soros betting against the Bank of England and one of the best trades this year may be a similar bet against the Reserve Bank of Australia.

The RBA has pledged to pin 3-year rates at 0.10% in a foray into yield curve control but a rapid recovery in the global economy and move up in global rates threatens to make that position untenable.

The next RBA decision is at 0430 GMT.

The cash rate is entirely expected to be unchanged at 0.10% and a poll of economists expect the cash rate on hold right through 2022.

Current guidance from the RBA is not to begin hiking until actual inflation — not foreacst — is within in the 2-3% range and they don’t see that happening until at least 2024.

The RBA’s Debelle also said they want to see the unemployment rate between the “low 4s” and “high 3s” before hiking.

The first domino to fall is the 3-year yield curve control target. Currently, that’s focused on the April 2024 note. Next up would be the November maturity, which is trading at 0.28%. If that’s the case, it would weigh on AUD but I just can’t see the RBA digging in that hard.

For now, no change is expected but with the market pricing in hikes in 2022 or 2023 and the RBA pinning April 2024 notes, something has to give. I’m betting it’s the RBA.

A final spot to watch is the housing market. The RBA has washed its hands of it but pressure is growing with prices up 2.8% in March alone.

In FX, the Australian dollar is bouncing today as it tracks a broad US dollar move but will need to clear last week’s high to get any traction and neutralize the head-and-shoulders pattern on the chart.

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