Australian bond yields sink on RBA easing hopes; CPI data eyed next week

The Australian government bonds rallied on Friday as investors speculate that the Reserve Bank of Australia will lower its official cash rate from prevailing record low in August’s monetary policy meeting.

Also, Bloomberg’s implied probability of 25 basis points rate cut by the RBA rose to 65 percent from an earlier 56 percent.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, fell 4-1/2 basis points to 1.885 percent and the yield on short-term 2-year note also dipped 3 basis points to 1.511 percent by 05:40 GMT.

On Tuesday, the RBA in its July meeting minutes (when rates were left unchanged) mentioned that the officials are waiting for further information on upcoming economic data and updated economic outlook before deciding on policy decision in August.

The central bank reiterated that rising AUD would complicate economic re-balancing and suggested Australian economy grew at moderate pace in the second quarter of 2016. They further added that inflation is expected to remain quite low for some time given subdued wages, cost pressures and the measures of inflation expectations remained below average.

The liaison suggested retail sales picked up in June, but price discounting is still continuing and the recent labour data remained mixed, leading indicators still pointed to jobs growth. Liaison also pointed to growth in non-mining business investment. Lastly, the RBA judged uncertainty caused by Brexit to have only a modest impact on global growth.

Lastly, investors will remain keen to focus on the Q2 CPI data, which is scheduled to take place on July 27 at 01:30 GMT.

Meanwhile, the Australian dollar has hit a new session low; now under 0.7470 and the benchmark Australia's S&P/ASX 200 index was trading down 0.27 percent, or 14.5 points, at 5,437.5 by 05:40 GMT.