Australian bonds slump on Sino-U.S. trade truce; RBA policy decision in focus

Australian government bonds slumped across the curve during Asian session on Monday after China and United States leaders brokered a truce in their trade conflict. Risk appetite has returned this morning on the positive Sino-US trade truce struck at the G20 Summit.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, rose 3 basis points to 2.623 percent, the yield on the long-term 30-year bond also climbed 3 basis points to 3.147 percent and the yield on short-term 2-year up 1/2 basis point to 2.015 percent by 03:30GMT.

“There should be no wishful thinking that the truce would end the trade war between the world’s two largest economies. The White House has agreed not to raise tariffs on Chinese goods in the next 90 days in exchange for trade talks. This includes the scheduled increase in the tariff rate to 25 percent from 10 percent on USD200 billion of Chinese goods from 1 January 2019,” noted Philip Wee, FX Strategist at DBS group research.

“It, however, remains to be seen if real progress could be achieved during this narrow window to resolve the contentious issues, not just on trade, but also intellectual property rights. If negotiations fail by the early March 2019 deadline, the tariffs on USD200bn will rise to 25% alongside the threat for US tariffs on the remainder USD265bn worth of Chinese goods.”

According to the economic data released today, building approvals slumped 1.5 percent in October, only partly reversing September’s 5.5 percent increase. The annual pace of building approvals deteriorated to a decline of 13.4 percent in October, after a fall of 12.8 percent in September.

On the other hand, the run of good news in the business sector is continuing. Gross company operating profits rose by 1.9 percent in the September quarter, the fourth consecutive quarterly gain.

Lastly, the Reserve Bank of Australia is due to release its next monetary policy decision on Tuesday, Dec 4 (at 04:30 GMT). The CB will keep its benchmark interest rate at a record low of 1.50 percent for the 26th consecutive meeting, the longest period ever. Overall, the board meeting is not expected to reveal any major policy shifts.

Meanwhile, the S&P/ASX 200 index traded 0.71 percent higher at 5,770.5 by 03:40 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at 21.61 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex