Australian bonds gain as FOMC July minutes dampen prospects for rate hike this year

The Australian government bonds gained Thursday as FOMC July meeting minutes indicated that FOMC officials were split on whether a rate hike was needed soon that dampened prospects for a rate hike this year.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, fell 3-1/2 basis points to 1.934 percent and the yield on short-term 3-year note dipped nearly 2 basis points to 1.403 percent by 05:40 GMT.

Minutes from the 26 – 27 July FOMC meeting indicated that FOMC officials were split on whether a rate hike was needed soon. Overall, many judged that it was appropriate to wait for additional information that would allow them to evaluate the underlying momentum in economic activity and the labour market and whether inflation was continuing to rise gradually to 2 percent as expected.

However, several participants suggested there would likely be ample time to react if inflation rose more quickly than they currently anticipated, and they preferred to defer another increase in the federal funds rate until they were more confident that inflation was moving closer to 2 percent on a sustained basis.

On balance, participants generally indicated that their economic forecasts had changed little over the intermeeting period, continuing to anticipate that, with gradual adjustments in the stance of monetary policy, economic activity would expand at a moderate pace and labour market indicators would strengthen.

Moreover, investors did not react to the lower unemployment rate, which fell to 5.7 percent in July, against market consensus for an increase of 5.8 percent, as compared to previous 5.8 percent in June.

In addition, Australia’s employment change for July came in at +26.2K (expectation was for +10K), from +10.8K, revised from +7.9K in June. Full-time jobs fell to -45.4K, from +44K, revised from +38.4K. This was the biggest fall in full-time employment since 2003; part-time jobs rose to +71.6K, from -30.6K in June.

Meanwhile, the benchmark Australia's S&P/ASX 200 index traded 0.73 percent lower to 5,473.5 by 05:50 GMT.