RBA meeting playbook - what traders need to know

2 เม.ย. 2022

With the RBA meeting in play on Tuesday, here are a few variables traders can look at to assess the skew of risk – there are obviously many other moving parts, but could the RBA deliver a surprise?

Here are a few core considerations.

1) Rates pricing – 0% chance of a hike (either 10bp or 25bp) for this meeting, but we see 170bp (6.8 hikes) priced for end-2022, and 320bp (or nearly 13 hikes) for end-2023.

Rates lift-off is expected in the June meeting, although the case for a 15bp hike to get the cash rate to 25bp has risen – will the statement go anyway to meeting these expectations?

2) AUDUSD 1-week implied vol sits at 9.96% - this is the 50th percentile of the 12-month range – the breakeven move on the straddle is 86-pips – this suggests a trading range of 0.7581 to 0.7411 (with a 68.2% level of confidence) and 0.7667 to 0.7325 (95% level of confidence). Whilst there are obviously other drivers, the market is not expecting any glaring surprises from this meeting – could they be proved wrong?

AUDUSD 1-week call volatility trades at a 0.89 discount to put vol – this skew is the 59th percentile of the 12-month range – on balance, the market feels if there is a move the risks are symmetrical.

3) Fundamentals supporting the USD - AUDUSD 6- and 12-month forward rate sit at 26 and 44 points respectively – so carry on rolling forwards is modestly favouring USD longs. We also see US 2yr Treasury yields command a 62bp premium over Aussie 2yr.

Supporting the AUD - AUD terms of trade are moving higher vs US ToT. We also see a steeper relative Aussie curve & Aus 10yr real yields hold a 77bp premium to US 10yr real rates. The ASX200 is also outperforming the S&P500 (currency hedged).

4) Technicals - On the daily price holds a short-term consolidation range of 0.7540 to 0.7457 – which way does it break? An upside break suggests a potential target of 0.7683 (138% fibo extension of 0.7165 to 0.7540 rally).

5) Positioning – retail are skewed short AUDUSD (we see 73% of all open positions held short, 74% on AUDJPY) – on the CFTC report, leveraged funds hold a 25,878-contract short position, asset managers are short 2574 contracts but have been reducing short – so retail, leveraged and real money all still structurally short AUD.

6) Other key Aussie events for the dairy – RBA financial stability report (8 April), Aussie employment report (4 April), Q1 CPI (27 April), May RBA meeting (3 May), Q1 wage price index (18 May), Federal election

Good luck - which way do you see the risks this week