The Australian bonds were trading modestly firmer on Friday for three consecutive days as investors were cautious ahead of Reserve Bank of Australia’s (RBA) monetary policy meeting. Also, weak United States Q1 Gross Domestic Product (GDP) figure drove investors towards safe-haven assets. The yield on the benchmark 10-year Treasury note which moves inversely to its price, moved lower 0.43 pct to 2.521 pct and the yield on the 2-year Treasury bond ticked down 1.53 pct to 1.868 pct by 0505 GMT.
The United States Q1 GDP rose 0.5 pct q/q (annualized), lower than the market expectation of 0.7 pct q/q, from 1.4 pct in the previous quarter. Similarly, personal consumption increased 1.9 pct, against market anticipation of 1.7 pct, from 2.4% in the last quarter of 2015. Moreover, exports tumbled 2.8 pct, from prior down 2 pct, alongside a 0.2 pct increase from imports. Business investments also decline 5.9 pct, alongside the deceleration seen in the headline measure, this report clearly reflects the weaker tone of data seen to open the year. Although a number of releases continue to reflect current economic dampness, the potential for a rebound in inventories in the months ahead should provide a boost to growth as we move further into 2016.
Yesterday, the Australia Q1 export price index fell 4.7 pct q/q, market expectation was for a fall of 1.5 pct, from down 5.4 pct. Similarly, import price index fell 3.0 pct q/q, market was anticipating a fall of 0.9 pct, from down 0.3 pct.
The Reserve Bank of Australia is set to release its next policy statement on Tuesday 3rd May (at 04:30 GMT). We foresee that if Reserve Bank of Australia (RBA) wants to ease policy further, then inflation won’t be an issue going by the latest release today, which saw quite a pullback. However, it is unlikely for RBA, which has kept policy on hold, since last summer, will be very much eager to ease policy. Country’s real estate prices are still under upward pressure, due to foreign buying on weaker Aussie and domestic buying on lower interest rates.
According recent Reuters poll, 11 of 48 economists expected a cut of 25bp next Tuesday and 37 of them say 'on hold' next week's meeting.
“Bond yields rose slightly after the release of soft US gross domestic product data, a weaker greenback and firmer commodity prices,” ANZ economists said in a note.
Meanwhile, Australia's S&P/ASX 200 rose 0.91 pct to 5,228.5 by 0505 GMT.
The material has been provided by InstaForex Company – www.instaforex.com