The strong volume in May follows a record volume month in April when a record 207,795 contracts were traded with a notional value of over $623 billion. The previous monthly record of 166,539 contracts was set in May 2005. Average daily volume in April 2006 was over 11,500 contracts, an increase of 66% on April 2005.
The record volumes during April and early May are driven by recent domestic economic data indicating a strengthening economy resulting in a shift in market expectations of an increase in the Official Cash Rate by 25bp to 5.75%. The May 2006 30 Day Cash Rate contract was trading at 94.360 prior to the Reserve Bank of Australia (RBA) 9.30am announcement, indicative of a 60% expectation of a rate rise.
Maurice Farhart, General Manager, Interest Rate Products and Services said, "The current level of liquidity and volume in the 30 Day Interbank Cash Rate Futures is reflective of the contracts dominance in this part of the yield curve. An increasing number of users are able to manage short end exposures using the contract.”
The current market in the 30 Day Cash Rate Futures shows the market pricing in a 48% chance of a further rate rise in September 2006. The market is fully pricing in a further 25bp rate increase for early 2007. To view current market expectations and for further information on the Target Rate Tracker please visit www.sfe.com.au/targetratetracker.
