Australian bonds hold gains after RBA keeps policy unchanged for record 27th straight month despite weak inflation

Australian government bonds held gains across the curve during Asian session on Tuesday as investors’ preferred safe-haven buying after the Reserve Bank of Australia (RBA) left its monetary policy unchanged for the record 27th straight month despite weak inflation and falling house prices.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, fell 1-1/2 basis points to 2.726 percent, the yield on the long-term 30-year bond also dipped 1-1/2 basis points to 3.254 percent and the yield on short-term 2-year down 1-1/2 basis points to 2.044 percent by 03:50GMT.

At its meeting today, the RBA’s Board decided to leave the cash rate unchanged at 1.50 percent. The Board said the low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual.

Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.

On the other hand, financial markets were mildly cautious just before the U.S. mid-term elections. The U.S. imposed sanctions on Iran, but there was only a limited impact on oil prices. The U.S. shares were mixed, U.S. bond yields were slightly lower, and the U.S. dollar weakened.

“The U.S. Treasuries trended sideways. The U.S. 10-year yields edged down 1 basis point to 3.20 percent, but held onto most of its gains after strong jobs and inflation data on Friday,” noted St.George Bank.

ANZ in its morning note said markets are broadly stable as U.S. data releases continued to indicate strong growth momentum ahead of Tuesday’s mid-term elections in the U.S. as well as FOMC.. and RBNZ decisions this week.

"We expect the FOMC to maintain its upbeat assessment for household spending and the labour market despite recent financial market volatility," noted economists at ANZ.

Meanwhile, the S&P/ASX 200 index traded 0.56% higher at 5,843.5 by 03:50 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained highly bullish at 126.07 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex