Australian bonds suffer after RBA keeps policy unchanged; December retail sales eyed

The Australian bonds suffered during Asian session of the second trading day of the week Tuesday, after the Reserve Bank of Australia (RBA) remained on hold at its monetary policy meeting, held early today ahead of the country’s retail sales for the month of December, scheduled to be released on February 6 by 00:30GMT.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, rose nearly 1 basis point to 0.926 percent, the yield on the long-term 30-year bond also edged tad higher to 1.522 percent and the yield on short-term 2-year jumped nearly 3 basis points to trade at 0.655 percent by 04:40GMT.

The RBA sounded cautious when it left rates on hold today and we think persistent weakness in the underlying economy will force the Bank to 0.5 percent in April. The decision to leave rates on hold at 0.75 percent was correctly anticipated by 28 of the 33 analysts polled by Bloomberg, Capital Economics reported.

The statement highlighted some positive outturns in recent data including the decline in the unemployment rate to 5.1 percent. But the statement also discussed the risks to growth in the near term from the Australian Bushfires and the coronavirus.

"Given our weaker GDP forecast, we think inflation will fall further below the Bank’s target this year forcing the RBA to cut rates before long. We forecast the Bank to cut interest rates twice this year with the first of those cuts taking place in April," Capital Economics commented in the report.

Meanwhile, the S&P/ASX 200 index traded tad 0.33 percent higher at 6,882.50 by 04:45GMT.