Bond traders are betting Australia’s central bank will call an end to interest-rate hikes as the fallout from US bank failures roils global markets.
(Bloomberg) — Bond traders are betting Australia’s central bank will call an end to interest-rate hikes as the fallout from US bank failures roils global markets.
That looks like the wrong call given the strong inflationary pressures that remain evident in the nation’s A$2.2 trillion ($1.5 trillion) economy, according to Katie Petering, a multi-asset strategist at BlackRock Australia.
“We don’t think Australia is immune to that tough trade off between crushing growth to rein in inflation or living with higher inflation,” Petering said Tuesday at a briefing in Sydney. “We have pent up savings as well from Covid — about A$300 billion — which consumers are happy to spend, particularly on services. The RBA has really no choice but to continue to hike to address that.”
Swaps linked to RBA meeting dates plunged this week as the collapse of Silicon Valley Bank spurred investors worldwide to speculate that the sharpest global tightening cycle for a generation is over. Similar US contracts now show traders expect the Federal Reserve will soon pause its series of interest-rate hikes and turn soon after to easing policy.
“You’ve still got an inflation problem in Australia, when you look at the recent GDP data showing that unit labor costs are increasing,” Stephen Miller, a Sydney-based investment strategist at GSFM, said in an interview. “If you think the number one problem is inflation, which think is probably true, then you’ve gotta keep tightening.”
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