Australian bonds edge slightly higher on weaker-than-expected Chinese CPI data; markets await employment report

Australian government bonds edged slightly higher on Thursday tracking weaker-than-expected Chinese consumer inflation data. Now, markets await next week’s employment report which might set a tone for the Reserve Bank of Australia in its next month’s monetary policy meeting.

The yield on Australia’s benchmark 10-year Note, which moves inversely to its price, dipped 1 basis point to 2.780 percent, the yield on the long-term 30-year Note fell 1 basis point to 3.276 percent and the yield on short-term 2-year down nearly 1-1/2 basis points to 2.019 percent by 03:20 GMT.

Australia is China's sixth largest trading partner; it is China's fifth-biggest supplier of imports and its tenth biggest customer for exports. Therefore, any economic development in the world’s second-largest economy affect the Australian markets. China's consumer price index, a main gauge of inflation, rose 1.8 percent year on year in April, down from 2.1 percent for March, data from the National Bureau of Statistics showed Thursday.

In the United States, The Treasury complex saw downward pressure on Wednesday, largely rebuffing weaker than expected producer prices data that saw downward pressure y/y on both the headline and core measures. Overall, this saw a resumed push in the 10-year Note yield back towards the 3.00 percent mark, something we anticipate will remain a sticking point for the foreseeable future.

With respect to Fed speakers, the commentary was largely limited to Atlanta Fed President Bostic who warned of broader market uncertainty pertaining from trade policy and fear of potential escalating tension (or all-out trade wars) on the horizon. Markets now look ahead to a greater flow of data on Thursday, highlighted by consumer prices, jobless claims and Treasury budget releases, alongside a 30Yr Bond auction in the early afternoon.

Moreover, the bonds investors also shrug-off dovish policy statement from the Australian central bank release last week on Friday, where the RBA noted that March quarter inflation outcomes were broadly in line with the forecast in the February Statement on Monetary Policy and confirmed that inflation remains low but stable. The low inflation outcomes reflect spare capacity in the economy and the associated low wages growth, as well as the ongoing downward pressure on retail prices due to increased competition in the sector.

Meanwhile, the S&P/ASX 200 index traded 0.25 percent lower at 6,095.5 by 03:50 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at -36.79 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

FxWirePro launches Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest