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Australian government bonds gained during early Asian session Thursday tracking a similar movement in the United States Treasuries after a weaker-than-expected growth in the latter country’s consumer price inflation (CPI) for the month of May, released late yesterday.
The yield on Australia’s benchmark 10-year note, which moves inversely to its price, plunged 3 basis points to 1.409 percent, the yield on the long-term 30-year bond also slumped nearly 3 basis points to 2.048 percent and the yield on short-term 2-year plummeted nearly 4 basis points to 1.018 percent by 03:45GMT.
US core inflation in May slowed to 2.0 percent from 2.1 percent, which added to the probability that the Fed may cut interest rates before the end of this year. UST 10-year yields plunged 2.26bp to 2.12 percent; the UST yield curve flattened 0.83bp to 9.43bp inverted, led by a decline on the front end of the curve, OCBC Treasury Research reported.
Headline inflation also eased to 1.8 percent in May from 2.0 percent last month. The softening CPI calls into question on the “transient” label that Fed Chair Jerome Powell placed on US inflationary pressures. A falling CPI print also increases the probability that the Fed may cut rates soon, exemplified by the further flattening of the inverted UST yield curve led by a decline on front end.
Separately, the budget statement shows the deficit in May ballooning to -$207.8 billion from -$146.8 billion from April. Lower tax revenues from tax cuts were mainly attributed to the widening budget deficit, the report added.
The deceleration of year-on-year readings was mainly due to falling gasoline prices and food prices. Core PPI increased by 0.2 percent m/m and 2.3 percent y/y, supported by rising service costs. This may support the rebound of the PCE. Markets will closely watch for the US CPI data due today, the report added.
Meanwhile, the S&P/ASX 200 index remained flat at 6,550.5 by 03:50GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained highly bearish at -153.29 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex
