Australia bonds gain after China retaliates with $60 bln tariffs on U.S. goods; RBA’s policy decision in focus

Australian government bonds gained across the board on the first trading day Monday after China retaliated with $60 billion tariffs on U.S. imported goods, injecting more fear about a full-fledged trade war between the world’s two major economies.

The yield on Australia’s benchmark 10-year Note, which moves inversely to its price, fell nearly 4 basis points to 2.693 percent, the yield on the long-term 30-year Note also dipped 3-1/2 basis points to 3.175 percent and the yield on short-term 2-year slumped nearly 2 basis points to 2.041 percent by 03:30 GMT.

The OCBC Bank in its latest Treasury note said China’s Commerce Ministry unveiled the second list of US$60 billion US import subject to additional tariff ranging from 5-25 percent in reaction to the news that US is considering raising the tariff rate for USD200 billion Chinese imports to 25 percent from previous proposed 10 percent. The new tariff will only take effect should Trump Administration go ahead with the plan to impose further tariffs on USD200 billion Chinese goods.

Following this, investors moved to safe-haven buying on fear of full-fledged trade war between U.S.-China.

On the other hand, it is worth noting that the RBA next meeting is scheduled for August 7, where the board members are expected to keep its interest rate unchanged at 1.50 percent. However, the central bank in its Statement on Monetary Policy (SoMP) could remain dovish of inflation growth, while keeping other economic forecasts unchanged. The SoMP is scheduled to be released on Friday.

"The RBA is first out of the gates on Tuesday and is expected to hold its cash target rate at 1.5 percent in the wake of a soft Q2 inflation report. Australian headline (2.1 percent y/y), trimmed mean (1.9 percent) and weighted median (1.9 percent) inflation measures all remain toward or below the bottom end of the RBA’s 2–3 percent inflation target range," noted Derek Holt, Vice President at Scotiabank Economics.

Meanwhile, the S&P/ASX 200 index traded 0.19 percent higher at 6,213.5 by 03:30 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at -37.88 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex