Australian bonds climb tracking U.S. Treasuries after Fed minutes maintain case for continued rate hikes

Australian government bonds climbed during Asian session Friday tracking a similar movement in the United States counterpart after the Federal Reserve’s November monetary policy meeting minutes re-affirmed the case for continued interest rate hikes.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, fell 2 basis points to 2.590 percent, the yield on the long-term 30-year bond also slumped 2 basis points to 3.116 percent and the yield on short-term 2-year traded 1 basis point lower at 2.001 percent by 02:50GMT.

In the minutes from the FOMC meeting earlier this month, committee members remained upbeat on the U.S. economic outlook. Labor market and consumer spending were highlighted as two areas of strength, while a slowdown in residential and most recently business investment were noted as soft spots.  Based on incoming data, participants indicated that their view of the economic outlook was little changed, with above-trend growth expected to continue in the near-term, TD Economics reported.

"Markets may have overreacted to Powell's statement given that the current fed funds rate is, in fact, only slightly below the bottom of the range of FOMC members estimates (even as it is a fair bit further away from the median estimate). Nonetheless, we do see downside risk to that median estimate (last published in September)," the report commented.

A hike in December is still very much in the cards, as confirmed by the November minutes, but, with PCE inflation running at just 1.8 percent y/y and FOMC forecasts for inflation likely to be revised down in the next Summary of Economic Projections accompanying the December announcement, the Fed does have the flexibility to proceed with more caution next year.

Meanwhile, the S&P/ASX 200 index traded 0.92 percent lower at 5,691.50 by 02:55GMT, while at 02:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at -2.58 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex