Australian bonds plunge as US initial jobless claims fall to lowest in seven weeks

The Australian government bonds plunged Friday as fewer Americans filed applications for unemployment benefits last week, highlighting the United States job market remains healthy. Also, investors cashed in profits after relishing previous gains.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, rose 10-1/2 basis points to 2.023 percent and the yield on short-term 2-year jumped 7 basis points to 1.578 percent at 04:30 GMT.

The US Initial jobless claims for the week ending 3 September August decreased -4k to 259k, below expectations for a 265k result, as compared to the unrevised 263k reading seen in the week prior.

Moreover, the 4-week average was reported at 261.3k, down from the unrevised 263.0k reading seen in the week prior. Meanwhile, continuing claims for the week ending 27 August decreased to 2.144 million, versus the 2.151 million reading seen prior. The insured unemployment rate held unchanged at 1.6 percent.

In addition, Richmond Fed President Lacker said late yesterday that he still sees a strong case for a September rate hike, despite the weak ISM data. He pointed out that GDP and employment seem to be 'on track'.

On Wednesday, Australia’s GDP increased 0.5 percent q/q, lower than the market expectation of 0.6 percent rise, from 1.1 percent in the previous quarter. On an annual basis, it climbed 3.3 percent y/y, slightly below expectations of 3.3 percent y/y, as compared to 3.0 percent, revised from 3.1 percent same period a year ago. This is the fastest economic growth registered in last four years.

“We think that the weakness in inflation will keep the Bank’s easing bias intact, although we acknowledge that the renewed strength in housing reduces the probability of acting on the bias,” said ANZ in a research note.

On Tuesday, the Reserve Bank of Australia’s bank board members decided to leave the cash rate unchanged at 1.50 percent, which was widely in line with expectations after having lowered it by 25 basis points in August. We foresee that the central bank is likely to ease further in November after it gets another read on inflation in late October. The RBA second last monetary policy meeting for 2016 is scheduled for November 2.

Third quarter consumer inflation data will be key in regards to future monetary policy expectations and it is not released until October and therefore although the RBA will likely leave policy unchanged at the upcoming October meeting. On the other hand, it is worth noting that if third quarter CPI disappoints, official cash rate cut is unavoidable.

Meanwhile, the benchmark Australia's S&P/ASX 200 index traded 0.21 percent lower to 5,339.5 by 04:30 GMT.