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The Australian bonds slumped on Tuesday after reading Reserve Bank of Australia’s April monetary policy meeting minutes and New York Federal Reserve William Dudley’s optimistic speech about United States inflation returning to 2 pct next year. The yield on the benchmark 10-year bonds, which moves inversely to its price, moved higher 2.40 pct to 2.558 pct and the yield on the 3-year bond climbed 1.99 pct to 1.994 pct by 0445 GMT.
The Reserve Bank of Australia in its April monetary policy meeting hinted that they will continue to hold official cash rate and low inflation would provide scope to ease policy if necessary, there is a reasonable prospect for continued moderate economic growth, they added. Said it is also appropriate for the monetary policy to be very accommodative given consistent low inflation, higher AUD and appreciating AUD could complicate economic rebalancing, keep inflation low. Further, board noted service sector exports sensitive to AUD, discussed impact of AUD more broadly. Said rise in AUD is due to higher commodity prices and on rising expectations of slower Fed hikes. Said low interest rates had played important role in boosting consumption, housing market and the country is awaiting new information on inflation, whether jobs strength would be maintained. Further, members noted that labour market is noticeably stronger than year earlier. Slowdown in employment growth in early 2016 was to be expected and recent data remains consistent with further moderate growth in economy in Q1.
Yesterday, the New York Federal Reserve President William Dudley said that labour market conditions have significantly improved and economic news for the US is mostly favourable. Said he is confident that inflation will rise to 2% in 2017 and monetary policy adjustments to be gradual and cautious.
“United States bonds dipped after Federal Reserve Bank of New York president William Dudley suggested inflation would return to the US central bank's 2.0 pct target”, said St. George economist in its report.
“Australian bonds had outperformed slightly, but still followed US rates markets lower and we expect a quiet opening ahead of some bond supply later today," said ANZ economists in a note.
Lastly, we foresee that the markets will be primarily focus on the accompanying comments made by the RBA Governor Stevens (at 1900 GMT) for any signals about future policy.
