Markets likely to pare back expectations of RBA rate hike in November - Westpac

The Australian Q4 CPI came in a shade below market expectations. The data is unlikely to convince the central bank, they should join the hawkish G-7 bandwagon next week and as Analysts at Westpac state, "will remove the already small chance of an RBA hike from market-pricing before the middle of the year at least."

But is the central bank on track to raise rates in November? Westpac Analysts see the odds of a November rate hike falling to 75 percent over the coming week. So a further steepening of the yield curve is expected, i.e. drop in short-term rate hike probability could weigh over short-duration government bond yields, while a surge in long-term bond yields across the globe is likely to push long yields higher.

"This outcome will also keep narrowing pressure on the AU-US 10yr spread, with the current level (11bp) - the tightest the spread has been in this cycle", write Analysts at Westpac.