Australian bonds rally on expectations of weaker Q1 growth; RBA’s policy decision awaited

The Australian bonds rallied Tuesday, following expectations of a softer gross domestic product (GDP) of the country in the first quarter of this year and as investors wait to watch the Reserve Bank of Australia’s (RBA) monetary policy decision, scheduled to be unveiled today 04:30GMT.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, slumped 2 basis points to 2.38 percent, the yield on 15-year note plunged 2-1/2 basis points to 2.77 percent while the yield on short-term 2-year traded 2 basis points lower at 1.57 percent by 03:10 GMT.

Australia’s current account deficit (CAD) was much larger than expected in Q1, narrowing slightly to AUD3.1bn from a downwardly revised 3.5bn in Q4 2016. While the trade surplus improved broadly in line with expectations, a sharp widening in the income deficit was a surprise.  While the outcome for the CAD was disappointing, at 0.7% of GDP it is at its lowest since 1979.

Analysts estimate Australia's AUD1.7 trillion (USD1.27 trillion) annual GDP grew a slim 0.2 percent in the first quarter, a setback from the previous quarter's brisk 1.1 percent. The GDP report, due out on Wednesday, is also forecast to show annual growth slowed to 1.6 percent from 2.4 percent. However, few doubted the economy to have shredded growth in Q1, following disappointment in retail sales and home building.

Lastly, the RBA is expected to keep rates on hold at a record-low of 1.5 percent, where they have been stuck since May last year. The persistent weakness in wages along with the ongoing lack of inflationary pressure, however, will continue to worry the RBA.

Meanwhile, the ASX 200 index traded down 1.15 percent at 5,694.50 by 03:10GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained slightly bullish at 96.34 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex