Australian Bonds Slump on Firm U.S Data
The Australian 10-year bond tumbled on Friday, tracking U.S. trends after strong economic data from U.S. The US Initial jobless claims for the week ending 26 March increased +11k to 276k, versus the unrevised 265k reading seen in the week prior, above expectations for a 266k result.
The benchmark 10-year bond yields were up 3 bps at 2.53 pct as compared to previous close of 2.50 pct on Thursday. Similarly, the short-term debt (3-year) bond yields were also up 4 bps at 1.94 pct as compared to previous close of 1.90 pct on Thursday.
"The PMI outcomes appear to be in contrast to Fed (Federal Reserve) Chair (Janet) Yellen's more cautious approach to the pace and sustainability of the US recovery", said ANZ economists in its report.
“Market expectations regarding US rate hikes remain soft following recent dovish comments made by Dr Yellen”, they added
The Reserve Bank of Australia is set to release its third policy statement for 2016 on Tuesday, 5th April and is expected to leave the official cash rate at its record low of 2.00%, where it has been since May 2015. The RBA will monitor recent market disturbances, while keeping policy unchanged for the foreseeable future, but will stick with an easing bias.
Moreover, the RBA Governor Stevens in his latest comments said further cuts in interest rates remain on the table, but he must consider the longer-term risks of too low rates, i.e. the danger of excessive leverage. He also said that the real GDP growing at a slower pace and says easy monetary policy and lower AUD helping growth; therefore economy likely to expand at moderate pace.
We expect the central bank to lower its official cash rate in the future only if core inflation continues to move downward and if the economic growth statistics disappoint. Also, if unemployment and GDP growth fail to improve over the coming months, another cut will probably occur sooner rather than later.
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