Australian bonds snap rally post the RBA maintains overall stable economic outlook

The Australian government bonds snapped rally on the last trading day of the week after the Reserve Bank of Australia (RBA) maintained relatively stable economic outlook in the near-to-medium-term.

The yield on the benchmark 10-year Treasury note, which moves inversely to its price, bounced 5-1/2 basis points to 2.70 percent, the yield on 15-year note also jumped 5-1/2 basis points to 3.15 percent and the yield on short-term 2-year rebounded 4-1/2 basis points to 1.83 percent by 04:40 GMT.

According to the RBA’s Statement of Monetary Policy (SoMP), the new forecast profile for underlying inflation shows inflation running between 1.5-2.5 percent until the end of 2018, after which it ticks up to 2-3 percent by mid-2019. While this is still a solid two years away it suggests that the central bank is more confident that inflation will eventually pick up.

However, there were significant downward revisions to GDP growth in the near term and small downward revisions further out. The downgrade to the near term forecasts reflects base effects from the (temporary) weakness in Q3 GDP, while the small downgrade to the further out forecasts to 2¾-3¾, rather than the previous 3-4, in seems a much more achievable estimate, ANZ reported.

Lastly, the RBA foresees wages growth to be broadly unchanged this year, as some of the factors which have been holding down wages dissipate, after which it picks up gradually over 2018 and 2019. With the RBA now expecting underlying inflation to move into the middle of the target band by the end of the forecast period, the bank seems firmly on hold.

Meawhile, the ASX 200 index traded 0.51 percent higher at 5,664.00 at 04:50GMT, while at 04:00GMT, the FxWirePro's Hourly AUD Strength Index remained highly bullish at 103.74 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex