Australian bonds gain following weaker-than-expected May employment change, Chinese data

Australian government bonds gained on Thursday following weaker-than-expected May employment change and Chinese economic data. Also, U.S. Treasuries gained in the Asian session after remaining under pressure overnight on Fed interest rate hike.

The yield on Australia’s benchmark 10-year Note, which moves inversely to its price, fell 5 basis points to 2.736 percent, the yield on the long-term 30-year Note dipped 4 basis points to 3.241 percent and the yield on short-term 2-year down 3 basis points to 2.035 percent by 03:40 GMT.

Figures from the Australian Bureau of Statistics (ABS) released on Thursday showed Australian employment rose by lower-than-expected in May with gains led wholly by part-time work while the jobless rate ticked down to its lowest since November, a mixed outcome that points to tepid wages growth. The unemployment rate eased to 5.4 percent from 5.6 percent in April. It has remained between 5.4 percent and 5.6 percent for almost a year now.

In the United States, Treasuries expectedly came under pressure in the wake of the June FOMC statement at delivered an expected 25bps increase to the upper bound of the fed funds rate target range to 2.00 percent. However, some extra hawkishness was initially interpreted from upward revisions to the forecast for the year-end policy rate to 2.375 percent, up from 2.125 percent, though triggered by an upward shift from only one policymaker.

On balance, we continue to see the Fed as data dependent with an upward bias, exemplified by the positive characterization of the economy as a whole, the labor market in particular, both amidst a backdrop of budding upward inflation, though Chairman Powell was quick to undo any alarm bells regarding fears of a more aggressive FOMC in the months/quarters ahead.

Official data showed on Thursday that China's industrial output grew 6.8 percent in May from a year earlier, missing expectations, while fixed-asset investment growth slowed to 6.1 percent in the first five months, well below forecasts. This was negative for Australian debt market as China is the biggest trading partner of Australia.

On balance, we do not see this statement as incredibly surprising, with some changes in language largely being a reflection in changes in leadership and the reality that the upper end of the FOMC range now sits at 2.00 percent. Markets now look ahead to a greater flow of data on Thursday, highlighted by retail sales, import prices, jobless claims and business inventories releases.

Meanwhile, the S&P/ASX 200 index traded 0.11 percent lower at 6,017.5 by 03:45 GMT, while at 02:50GMT, the FxWirePro's Hourly AUD Strength Index remained slightly bearish at -80.21 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex