Australian bonds trade mixed in subdued session; Q2 wage data in focus

Australian government bonds traded mixed in subdued session Tuesday as investors remain sidelined in any major deal ahead of June quarter wage price index data. However, Turkey was the main focus for markets with emerging markets feeling contagion pain.

The yield on Australia’s benchmark 10-year Note, which moves inversely to its price, rose 1 basis point to 2.586 percent, the yield on the long-term 30-year Note also climbed 1 basis point to 3.075 percent and the yield on short-term 2-year slumped 1/2 basis point to 2.003 percent by 03:30 GMT.

“US 10-year treasury yields ranged sideways between a four-week low of 2.85 percent and 2.88 percent. US 2-year yields bounced off 2.58 percent (four-week low) to close at 2.61 percent. Fed fund futures yields are pricing around 1 percent more rate hikes in 2018,” said St. George Bank in its morning note.

“White House economic adviser Kevin Hassett said last night the Trump administration is monitoring the financial situation in Turkey "very closely". US President Trump announced on Friday the doubling of tariffs on US imports of Turkish steel to 50 percent. Hassett said Trump's decision to double tariffs on Turkish steel was "a tiny, tiny fraction" of Turkey's gross domestic product (GDP), "so for the currency to drop 40 percent is a sign that there are a lot of economic fundamentals that are out of whack in that country."

On the currency front, the ANZ reported that the AUD remains at the mercy of global risk appetites. The AUD is likely to continue trading defensively today, with business confidence representing an additional downside risk, given leading indicators suggest a sharp drop in business confidence is on the cards.

Markets now await Q2 wage price index data, which is expected to rise 0.6% q/q and 2.1% y/y.

Meanwhile, the S&P/ASX 200 index traded 0.51 percent higher at 6,238.5 by 03:30 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained slightly bearish at -82.41 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex