Australian long-term bonds gains after RBA says no strong case for near-term policy change

Australian long-term government bonds gained during Asian session on Friday after the Reserve Bank of Australia (RBA) Board said there is no strong case for any near-term policy change in its November Statement on Monetary Policy (SoMP).

The yield on Australia’s benchmark 10-year note, which moves inversely to its price, fell 1/2 basis point to 2.762 percent, the yield on the long-term 30-year bond dipped 1-1/2 basis points to 3.268 percent, but the yield on short-term 2-year up 1 basis point to 2.092 percent by 03:30GMT.

The RBA said given the expected gradual nature of that progress, the Board does not see a strong case to adjust the cash rate in the near term. The Reserve Bank Board has maintained the cash rate at 1.50 percent since August 2016. This stimulatory setting of monetary policy has supported the economy and resulted in progress toward full employment. Inflation has also increased over the past couple of years, although it is currently slightly below the target range.

“Despite the RBA’s upbeat mood, we assess that the risks are mounting around the consumer and housing as lending conditions tighten further. We remain comfortable with our view that the RBA is on hold this year, through 2019 and during 2020,” noted Andrew Hanlan, senior economist at Westpac.

Moreover, there was a little surprise from the Federal Reserve’s decision to leave rates unchanged and it remains on course to lift rates in December. US shares fell, bond yields rose slightly after the decision, while the US dollar rose.

“There was only a minor reaction in U.S. Treasuries on the Fed’s meeting. Yields on shorter-dated US treasuries lifted slightly with U.S. 2-year yields edging up 1 basis point to 2.97 percent. The U.S. 10-year yields initially slid, but then regained later in the session and extended those gains post the fed meeting to be unchanged at 3.24 percent. Financial markets are pricing in the chances of a Fed rate hike in December at close to 75 percent,” noted economists at St.George Bank.

Meanwhile, the S&P/ASX 200 index traded 0.21% lower at 5,890.5 by 03:40 GMT, while at 03:00GMT, the FxWirePro's Hourly AUD Strength Index remained neutral at 59.06 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex