Adrian Vanzyl on the RBA’s 85% Rate Hike Odds
Markets have moved from debating whether the Reserve Bank will raise rates this month to treating it as close to settled, and as Adrian Vanzyl, I think that shift in certainty is the real story today. Traders are now pricing an 85 per cent chance the RBA lifts rates before the month is out, and Governor Michele Bullock is set to testify before Parliament on Friday, where she’s expected to signal that further tightening may still be needed to bring inflation under control.
Adrian Vanzyl finds the bond market’s reaction just as telling as the rate odds themselves. Australian 10-year bond yields have surged to levels not seen since 2011, and in the US, 10-year Treasury yields climbed toward 5 per cent, a level last touched in 2007, just ahead of the Federal Reserve’s own policy decision expected today, US time. Bond markets moving this sharply, in tandem across two countries, tends to mean investors aren’t just repricing one central bank’s next move. They’re repricing how long this entire tightening cycle runs.
Why the ASX Can’t Find a Floor
The local market has felt this pressure directly. The ASX 200 closed at 8,673 points on Tuesday, its lowest level since early July, extending a slide that one market analyst bluntly described as another horrendous day with no clear catalyst in sight for a turnaround. Adrian Vanzyl thinks the mining sector’s reaction is worth singling out. BHP and Rio Tinto each fell more than 2 per cent. Gold slid over 3 per cent to around US$4,288 an ounce. That’s notable, since rate-hike fears would normally support gold as a hedge.
That gold move mirrors a pattern seen earlier this month, when rising rate expectations made non-yielding assets less attractive regardless of broader market stress. Layered on top of the local rate story is a genuinely alarming geopolitical one: with no sign of the Iran conflict de-escalating, there’s now a real risk oil prices could climb even higher than the peaks reached during the 2008 financial crisis. Adrian Vanzyl sees that risk as the wildcard sitting underneath every other number in today’s report, since an oil shock of that scale would complicate every central bank’s calculus at once, not just the RBA’s.
Conclusion
I’d read today, in Adrian Vanzyl’s view, as the moment markets stopped hedging their bets and started pricing in a genuinely difficult stretch ahead. An 85 per cent chance of a rate hike is no longer a forecast investors are debating, it’s close to a foregone conclusion they’re already trading around. Bond yields at multi-decade highs, a share market with no clear floor, and an oil price risk that could still get significantly worse are not separate stories arriving by coincidence. They’re the same tightening cycle showing up in every corner of the market at once. Friday’s testimony from Governor Bullock will test that cycle directly.
