AUD: Weighed down by rate hikes - TDS

Analysts at TD Securities note that in Australia, three out of the four major retail banks lifted their key standard variable rate (SVR) by an average of +14bp over the past two weeks.

Key Quotes

“The increases are the direct result of elevated domestic funding costs.”

“We cannot rule out more SVR hikes if the BBSW-OIS spread remains elevated, or widens even further heading into year-end.”

“OIS is flat at 1.5% through to end-2019, so the markets revert to data-watching and any RBA reaction to the hikes.”

“A trigger for even lower OIS pricing needs the RBA to drop the phrase “the next move is up” for the cash rate, so the market will be hyper-sensitive to RBA-speak (more than usual).”

“For the AUD, higher SVRs does some of the heavy lifting for the RBA, offering little support for AUD over the medium-term. That should limit the scope for AUD rallies over the next few months, although the tactical setup in the next few weeks looks much more appealing.”

“We like fresh longs in AUDCHF as a tactical valuation trade and think AUD should outperform CAD in the dollar bloc over the coming weeks.”