Australian bonds gain as RBA's policy statement provides no hint of near-term rate hike

Australian government bonds gained on Friday after the Reserve Bank of Australia (RBA) provided no hint of near-term interest rate hike, also, hinting that inflation is about to remain low for some time.

The yield on Australia’s benchmark 10-year Note, which moves inversely to its price, fell 4 basis points to 2.770 percent, the yield on the long-term 30-year Note dipped 4-1/2 basis points to 3.296 percent and the yield on short-term 2-year slumped nearly 2 basis points to 2.046 percent by 03:00 GMT.

The RBA noted that March quarter inflation outcomes were broadly in line with the forecast in the February Statement on Monetary Policy and confirmed that inflation remains low but stable. The low inflation outcomes reflect spare capacity in the economy and the associated low wages growth, as well as the ongoing downward pressure on retail prices due to increased competition in the sector.

On the other hand, the central bank said that Australia's GDP growth is expected to hit 3.25 percent by December 2018, though the unemployment rate has missed the expected level and inflation is unlikely to reach its target until 2020, which means the interest rates will continue to stay at record lows of 1.5 percent.

In the United States, Treasuries were little changed overnight during a relatively quiet session as markets looked ahead to the April employment report on Friday. From a data standpoint, markets received a flurry of releases, highlighted by jobless claims, initial claims were little changed on the week, preliminary 1Q18 non-farm productivity increasing +0.7 percent, trade balance headline saw considerable narrowing towards -$49.0 billion in March, ISM non-manufacturing headline decreased to 56.8) and factory orders releases increasing +1.6 percent m/m in March.

Overall, these releases were largely overshadowed by Friday's marquee event in non-farm payrolls (expectations are for a +192k increase in payrolls, alongside downward pressure in the unemployment rate to 4.0%). However, given the pronounced status of inflation conditions, we expect even greater attention will be paid to average hourly earnings in April.

Meanwhile, the S&P/ASX 200 index traded 0.71 percent lower at 6,048.5 by 03:05 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at 18.45 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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