Australian bond yields slide after RBA cuts rate to historic low; Q1 GDP in focus

Australian government bond yields slid during early Asian session Tuesday after the Reserve Bank of Australia (RBA) cut its benchmark interest rate to its historic low by 25 basis points to 1.25 percent, with an aim to assist faster progress in reducing unemployment and achieve more assured progress towards the inflation target.

Investors will now be eyeing the country’s gross domestic product (GDP) for the first quarter of this year, scheduled to be released on June 5 by 01:30GMT for further direction in the debt market.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, slipped nearly 1 basis point to 1.497 percent, the yield on the long-term 30-year bond also edged 1 basis point to 2.163 percent and the yield on short-term 2-year traded tad down at 1.124 percent by 06:20GMT.

The rationale for the rate cut then flows into the forward outlook, with the statement concluding:

"The Board will continue to monitor developments in the labour market closely and adjust monetary policy to support sustainable growth in the economy and the achievement of the inflation target over time," ANZ reported, citing the RBA’s monetary policy statement.

"It will be interesting whether the RBA provides any additional clarity on how it will judge progress in the labour market.  The Governor’s speech tonight, the title of which has been revealed as Today’s Reduction in the Cash Rate, may give us this clarity. As things stand the market could be excused from assuming that even a sideways move in the unemployment rate, let alone a bump higher, will deliver a rate cut at the next RBA meeting. We doubt this what this RBA is signalling. While we think there will be a further easing in coming months, our view is that the RBA will display some patience, given it doesn’t have a lot of policy space. If some of the key forward indicators display notable improvement then the RBA may sit pat for a period even if the unemployment holds around current levels. If they don’t, it will go sooner," ANZ Research further commented in the report.

Lastly, in a separate report, ANZ predicted Australia’s Q1 GDP to post a rise of 0.4 percent q/q, with annual growth declining to 1.7 percent, its slowest pace since 2009 amid the then global financial crisis.

Meanwhile, the S&P/ASX 200 index remained flat at 6,334.5 by 06:25GMT, while at 06:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at 0.86 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex