Why Westpac Says It's Too Early To Be Pricing Rate Hikes In Australia

From the guys and girls of Westpac’s Fixed Income Strategy team comes the view that the markets recent move to price Reserve Bank rate hikes over the next year into the market is too soon.

Chart 5 shows that implied terminal rate and its spread to the prevailing cash rate (grey line).

The size of the market-implied easing bias is the smallest since February – which was also the last time the market had rate hikes factored-in within the year.

While we are further into the easing cycle than we were at that time, we see little fundamental reason to completely revise away the potential for further RBA rate cuts.

Even more so, even if our own expectation for two further rate cuts in the current cycle does not prevail, we are of the opinion it is far too early to pre-empt a rapid evolution toward the next tightening cycle.

So that makes the current rise in the front end an opportunity to take advantage of.

Further bearish global influences will increasingly be felt more at the long end of the curve than at the shorter maturities out to three years.

Good news for borrowers.

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