The Australian bonds traded modestly firmer on Wednesday despite data showed higher than expected first quarter Gross Domestic Product (GDP) figure, which reduces the possibilities for a June cut. Moreover, tumbling crude oil prices and weak equities shifted investors towards safe-haven buying. The yield on the benchmark 10-year Treasury note which moves inversely to its price fell 1 basis point to 2.312 percent and short-term 2-year bonds yield also dipped 1 basis point to 1.689 percent by 05:15 GMT.
Australia’s first quarter gross domestic product surpassed market expectations, rising the fastest in almost three years that suppressed hopes of a rate cut by the Reserve Bank of Australia in its policy meeting next week. Gross domestic product (GDP) grew 1.1 percent in the three months to March, from the previous quarter when it rose an upwardly revised 0.7 percent, data released by the Bureau of Statistics showed Wednesday.
Further, annual growth surged 3.1 percent, from a downwardly revised 2.9 percent, maintaining the RBA’s forecast of 2.5-3.5 percent by June. Moreover, the Australian dollar appreciated almost half a US cent post the data was released, beating economic expectations, thereby reducing the need for any rate cut. However, market had anticipated a rise of 0.8 percent GDP q/q and 2.8 percent on year.
"All of the growth in the economy is coming from trade as the third phase of the mining boom kicks in as projects start exporting," said Shane Oliver, Chief Economist, AMP Capital Investors.
Although the Central Bank had eased its cash rate to a record low of 1.75 percent last month on alarming low inflation but investors are speculating a less than 0.1 probability of a further cut next Tuesday. Meanwhile, an improving economic background may provide a political boost to the coalition government headed by Malcolm Turnbull, who will face a national election next month.
The Australian bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Reserve Bank of Australia's target. Today, crude oil prices fell below $50 mark after UAE Oil Minister Suhail Mohammed Al Mazrouei said the market will fix itself to a fair price for consumers and producers, adding that the rules of supply and demand are working. The remarks pour cold water on the probability that OPEC will agree to an output freeze to buoy prices. The International benchmark Brent futures fell 0.80 pct to $49.49 and West Texas Intermediate (WTI) dipped 0.75 pct to $48.73 by 05:15 GMT.
Yesterday, Australia’s first quarter net exports rose 1.10 percent of GDP, higher than the markets consensus of 0.7 percent, from flat 0.0 percent in the previous quarter. Similarly, current account balance improved to -20.8 billion (consensus was for -19.5 billion) from -22.6 billion, revised -21.1 billion in the last quarter. Moreover, Australia private sector credit for April rose 0.5 percent m/m, in the line of markets consensus of +0.5 percent m/m, from 0.4 percent in March.
Meanwhile, the benchmark Australia's S&P/ASX 200 index was trading down 0.52 percent, or 30 points, at 5,334.5 by 05:15 GMT.
