Strategy Trade Update

Research evidence excerpt

Strategy Trade Update

Global Markets Research

19 August 2026

Foreign Exchange - Global

Exit paid Australia 3m1y versus US 3m1y

Short-end rates have moved closer to our sense of “fair value”; we take

profit and lower conviction to 2/5.

The trades

We exit our pay AU 3m1y versus US 3m1y trade at a spread of 58.5bp, taking profit and

lowering the conviction to 2/5 from 3/5.

Research Analysts

Australia/New Zealand Rates

Strategy

Andrew Ticehurst - NAL

We maintain a long 10yr ACGB versus US 10yr position, targeting a ~20bp move (to

15bp; entry 34bp) by mid-November, with a moderate conviction level (3/5).

Rationale

We entered a pay AU 3m1y versus US 3m1y position on 3 July , based on the view that

the RBA was a long way from signalling an end to its rate cut cycle, while we thought Fed

rate hikes were overpriced. We also noted that US data surprise indices appeared

stretched (to the upside), while Australian data surprise indices were unusually weak; we

were also attracted by the positive roll offered by this position.

Following recent market moves, we now feel that short-end rates are more fairly priced.

The Australian 3m1y rate has risen around 10bp since the trade’s inception, and at ~28bp

over the 4.35% cash rate now appears more consistent with our base case, that the RBA

will not hike again, but will continue to signal a hawkish stance for some months.

Meanwhile, US rate hike fears have receded, following the release of some softer data,

showing weaker job growth and retail sales, along with a benign PPI report. Recent data

have resulted in a dramatic unwind of stretched data surprise indices (Figure 2), which we

previously identified as one of the rationales for our initial trade.

We are also wary that the Australian July labour force report to be released tomorrow

could be soft. It is possible that the recent national census in Australia resulted in some

temporary job gains, or at least a rise in hours worked. However, job growth in Australia

has been unusually strong over recent months – indeed, the level of employment has

risen more strongly in Australia than in the US over recent months – and a softer report

tomorrow would not surprise.…