Australian bonds fall despite lower-than-expected Q3 CPI; focus turns to September retail sales

Australian government bonds fell during Asian session Wednesday as investors have largely shrugged-off the country’s lower-than-expected consumer price inflation (CPI) data for the third quarter of this year, with an additional eye on the retail sales for the month of September, due on November 2 by 00:30GMT for added direction in the debt market.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, slipped 1/2 basis point to 2.620 percent, the yield on the long-term 30-year bond remained tad lower at 3.111 percent and the yield on short-term 2-year too traded 1/2 basis point down at 1.980 percent by 05:00GMT.

Australia’s Q3 inflation data was expected to confirm weak price pressures, but even then, the data was below market expectations, with headline CPI rising 0.4 percent q/q, and decelerating in annual terms to 1.9 percent y/y from 2.1 percent.

The introduction of the new ChildCare Subsidy had a significant effect, with childcare prices falling 11.8 percent q/q, taking 0.2ppts off headline CPI. Alcohol & tobacco, housing, petrol each added 0.1 ppts, while international airfare prices rose sharply with holiday travel and accommodation adding 0.2ppts.

Core inflation was also weak, with the average of the two measures rising by 0.32 percent q/q (below market expectations). There were also downward revisions to both measures for Q2, to 0.4 percent q/q from an initially reported 0.5 percent q/q.

Meanwhile, the S&P/ASX 200 index traded 0.85 percent higher at 5,814.5 by 05:10GMT, while at 05:00GMT, the FxWirePro's Hourly AUD Strength Index remained slightly bearish at 76.44 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex