Australia 10-year yield hits 1-month high ahead of Q2 consumer price inflation data

Australian bonds slumped on the first trading day of the week Monday as U.S. Treasuries saw a downward pressure along the curve as investors absorbed more hostile commentary from President Donald Trump. Also, markets now await Q2 consumer inflation data for more understanding on future monetary policy direction.

The yield on Australia’s benchmark 10-year Note, which moves inversely to its price, rose 4-1/2 basis points to 2.671 percent, the yield on the long-term 30-year Note also jumped 4-1/2 basis points to 3.145 percent and the yield on short-term 2-year up 1 basis point to 2.062 percent by 03:30 GMT.

U.S. President Donald Trump’s criticism of the Fed should be viewed as noise. At this point, it is too early to consider that the Fed’s independence is going to be jeopardised as suggested by a modest steepening of the UST curve last week. The line of reasoning goes – if Trump does not like higher interest rates, the Fed may have to hike at a slower pace, DBS Bank reported in its latest note to clients.

“This brings down shorter-term yields while allowing inflation risks to build for the longer tenors. However, the Fed has proven to be able to conduct monetary policy as deemed appropriate since the 1980s. It appears unlikely that Powell will risk the Fed’s reputation on curbing inflation. Moreover, the momentum of the US economy is still firm with the Atlanta and St Louis Feds’ Nowcasts standing at 4.5 percent and 3.4 percent saar respectively,” said Philip Wee, FX Strategist Eugene Leow, Rates Strategist DBS Group Research.

Now markets await next week’s Australia Q2 inflation data, which is expected to rise 0.5 percent q/q and 2.2 percent y/y. A higher than expected number will boost the Australian bond yields and the Australian dollar.

Meanwhile, the S&P/ASX 200 index traded 0.55 percent lower at 6,173.5 by 03:30 GMT, while at 02:50GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at -47.62 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex