Australian bonds plunge as trade surplus hits record-high in December, RBA in focus next week

The Australian bonds plunged Thursday, as trade surplus hit record-high in December, also coming in better than what markets had initially anticipated. Also, investors are now looking forward to the Reserve Bank of Australia’s first monetary policy of 2017, scheduled to be held on February 7 for further direction in the debt market.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, surged 4 basis points to 2.78 percent, the yield on 15-year note also jumped 4 basis points to 3.24 percent and the yield on short-term 2-year rose 2 basis points to 1.82 percent by 04:50 GMT.

Australian trade surplus posted a mammoth gain in December, with the trade surplus rising to AUD3.5 billion (recorded since the series started in 1971), from an upwardly revised AUD2.0 billion in November.

The sizeable gain was driven by a spike in the value of coal and metal ores exports (up 13.7 percent and 9.7 percent respectively). Importantly, the lift in the value of these exports was led by both soaring commodity prices and higher volumes. Meanwhile, imports edged 0.7 percent higher, reported ANZ in its research note.

Moreover, the Reserve Bank of Australia (RBA) is expected to hold its first monetary policy meeting of 2017 on February 7. It is widely expected to maintain its bank rate at a historic low of 1.50 percent amid global market uncertainties.

There is increasing note of evidence that Australia is at a positive transition point for nominal growth, inflation and wages. Also, the unemployment rate has remained unchanged for nine consecutive months (trend basis) and the improvement in Q4 full-time employment will alleviate RBA’s concern.

If downside tail risks continue to subside and broader momentum improves as expected, RBA's next policy move will be 25 basis points hike in the first-quarter of 2018.

Meawhile, the ASX 200 index traded 0.16 percent lower at 5,597.50 percent at 05:00GMT, while at 5:00GMT, the FxWirePro's Hourly AUD Strength Index remained highly bullish at 107.79 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex