Australian bonds gain slightly ahead of RBA policy decision, no policy change is expected

Australian government bonds gained slightly across the curve on Tuesday as investors remained cautious ahead of the Reserve Bank of Australia (RBA) monetary policy decision, where no major shift in policy-stance is expected.

The yield on Australia’s benchmark 10-year Note, which moves inversely to its price, fell 2 basis points to 2.762 percent, the yield on the long-term 30-year Note also dipped 2 basis points to 3.280 percent and the yield on short-term 2-year down nearly 1/2 basis point to 2.061 percent by 03:05 GMT.

The RBA is due to release its next monetary policy statement on Tuesday, May 1 at 03:30 GMT. While keeping the cash rate at its all-time low of 1.50 percent, the central bank is not expected to change its policy stance significantly in its Statement.

In the United States, Treasuries opened the week with rangebound trading during a relatively quiet Monday session. From a data standpoint, markets received some nuggets of interest, highlighted by solid further gains in personal income/spending data increasing +0.3 percent m/m and +0.4 percent m/m, respectively.

From a prices standpoint, markets received upward pressure from both the headline and core PCE deflators increasing +2.0 percent y/y and +1.9 percent y/y, respectively. Although m/m price gains were relatively mild, an upward pressure in y/y rates is something that will likely be injected into the debate over the timing/frequency of future rate hikes something that could provide some turmoil if it appears the Fed begins to lean in a hawkish direction.

Markets now look ahead to a greater flow of data on Tuesday, highlighted by ISM manufacturing, construction spending and vehicle sales releases. However, the clear focus this week remains on 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.

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.

Meanwhile, the S&P/ASX 200 index traded 0.81 percent higher at 5,994.5 by 03:15 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained slightly bearish at 54.32 (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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