Australian bonds surge tracking U.S. Treasuries after Fed restrains further rate hikes; labour data looks solid

Australian government bonds surged during Asian trading session Thursday after the Federal Reserve put a brake on further rate hikes in the economy, in its monetary policy meeting, held late yesterday.

Widely in line with market expectations, the Federal Open Market Committee (FOMC) voted unanimously today to keep the range for the fed funds rate between 2.25-2.50 percent. Furthermore, the committee made some decisions regarding its balance sheet (bottom chart). At present, the Fed is allowing a maximum of $30 billion of Treasury securities to roll off its balance sheet every month.

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, plunged 4 basis points to 1.896 percent, the yield on the long-term 30-year bond slumped 2-1/2 basis points to 2.553 percent and the yield on short-term 2-year traded flat at 1.537 percent by 03:50GMT.

Starting in May, the maximum amount of Treasury securities that will be allowed to roll off will be reduced to $15 billion per month. Starting in October the overall size of the balance sheet will remain unchanged, for an unspecified period of time, Wells Fargo Economics reported.

The committee also downgraded its assessment of the economy, saying that “growth of economic activity has slowed from its solid rate in the fourth quarter.” More formally, the median FOMC member now forecasts that real GDP will grow 2.1 percent in 2019, which is down from the 2.3 percent rate that the median projected in December.

Lastly, Australia’s employment rose a modest 4.6k in February, following the 38.3k rise in January. Part-time jobs led the gain with a rise of 11.9k, while full-time jobs edged lower (-7.3k) after a strong rise in January (+65.6k).

Importantly, the unemployment rate dipped down to 4.9 percent, while the participation rate edged down to 65.6 percent (from 65.7 percent). The underemployment rate remained unchanged at 8.1 percent, while the underutilisation rate dipped to 13 percent, the lowest rate since 2013.

Meanwhile, the S&P/ASX 200 index traded -0.45 percent lower at 6,126.50 by 03:55GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained slightly bullish at 79.33 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex