Australian 10-year bond yield hits over 1-week low as disappointing economic data push back expectations for RBA rate hike

Australian bonds gained across the curve on Monday as disappointing economic data pushed back expectations for the Reserve Bank of Australia (RBA) interest rate hike. The RBA is scheduled to hold its next monetary policy meeting on May 1, where the central bank is widely expected to repeat the same policy statement.

The yield on Australia’s benchmark 10-year Note, which moves inversely to its price, fell 5 basis points to 2.785 percent, the yield on the long-term 30-year Note also dipped 5-1/2 basis points to 3.344 percent and the yield on short-term 2-year down 3 basis points to 2.066 percent by 02:20 GMT.

In the United States, Treasuries saw further firming to finish off the week on Friday following the release of stronger than expected 1Q18 employment cost index, increasing +0.8 percent, versus +0.6 percent in 4Q17 and advance GDP releases, increasing +2.3 percent, above expectations for a +2.0 percent result.

On balance, greater wage pressure lends support to the narrative that wages are sure to rise alongside increased economic activity and consumer spending bolstered in part by the recent injection of fiscal support via tax cuts.

Markets now look ahead to a greater flow of data throughout the week ahead in the U.S., highlighted by the FOMC statement/rate decision on Wednesday and the April employment report on Friday markets expect a non-farm payroll increase of +188K, alongside a decrease in the unemployment rate to 4.0 percent. Earlier in the week, markets also receive personal income/spending, ISM manufacturing, the ADP employment estimate, trade balance, ISM non-manufacturing and trade balance releases.

Last week, the Consumer Price Index (CPI) rose 0.4 percent in the March quarter 2018, the latest Australian Bureau of Statistics (ABS) figures reveal. This follows a rise of 0.6 percent in the December quarter 2017. That was below the market expectations of 0.5 percent growth. This lower-than-expected inflation could derail the RBA interest rate hike this year. We do expect one interest rate hike in 2019.

It is worth noting that Japan, China and India markets remain closed for the national holiday.

Meanwhile, the S&P/ASX 200 index traded 0.31 percent higher at 5,965.5 by 02:20 GMT, while at 02:00GMT, the FxWirePro's Hourly AUD Strength Index remained slightly bullish at 121.65 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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