Rangefinder altimeter issue in GUIDED mode

Hello all,

I was wondering if someone can clarify whether rangefinder altimeter can work in GUIDED mode? My copter has a rangefinder altimeter which works great in LOITER. However, when taking off in GUIDED the copter appears to use the barometer instead and oscillates vertically a bit due to the propwash.

In the attached image the barometer and altimeter data are visible and oscillating as per takeoff behaviour. Only when the AP is switched into LOITER the data for DSAlt starts to show up and the AP appears to start using the altimeter.

Has anyone come across this issue and knows if it is possible for altitude control in GUIDED to match LOITER?

PS: Firmware is Stable release 4.2.3