The Australian government bonds rallied on Friday after the governor of the Bank of England Mark Carney warns that the central bank is likely to act to help the economy, it will not on its own be able to protect Britain from economic pain.
The yield on the benchmark 10-year Treasury note, which moves inversely to its price fell nearly 3 basis points to 1.979 percent and the yield on short-term 2-year note dipped 1 basis point to 1.587 percent by 05:30 GMT.
The BoE governor Carney said that the central bank will probably have to ease policy over the summer and the referendum implications for the UK economy are not yet clear, but a 'material slowing' is now the BoE's central forecast. He further added that uncertainty could remain elevated for some time and have more persistent drag on activity, also sees risk of tighter financial conditions and of spillovers to other economies.
This suggests that a 25 basis points Bank rate cut to 0.25 percent can be counted on by the 4 August MPC meeting, which also brings a new Inflation Report, and is now more likely at the 14 July meeting.
On Thursday, Australia May job vacancies fell -1.9 percent m/m from up 2.7 percent m/m in April and private sector credit rose 0.4 percent m/m, against expectation of 0.5 percent, as compared to 0.5 percent in April.
“Global rates markets were stronger in the session, particularly Europe, as investors bought bonds to balance their books,” the ANZ economists said in a note.
“Australian markets followed the move and should open with a bias for lower yields today,” they added.
Markets will remain keen to focus on the next weeks Reserve Bank of Australia monetary policy decision scheduled to take place on Tuesday, July 5 at 04:30 GMT. The RBA will release latest retail sales and international trade figures on the same day.
We foresee that the Reserve Bank will remain on hold although heightened global risks suggest a higher probability of a rate cut in coming months. In addition, the RBA would prefer to have an up-to-date reading on inflation pressures, which suggests any upcoming cut would be more likely in August after the release of the Q2 CPI.
Meanwhile, the benchmark Australia's S&P/ASX 200 index was trading down 0.54 percent, or 28 points, at 5,119.5 by 05:30 GMT.
The material has been provided by InstaForex Company – www.instaforex.com