The Australian 10-year bond has spiked on Wednesday, tracking US trends following a dovish stance from the US Federal Reserve Chair Janet Yellen. Meanwhile, the benchmark 10-year bonds were trading at 97.50, implying yield of 2.494, as compared to 97.425 on Tuesday and 3-year bonds contract was at 98.090, from up 98.030 at 6:00 GMT
According to Westpac report, U.S. Treasuries spiked overnight after Fed Chair Janet Yellen flagged the need to proceed cautiously with rate rises given risks to the outlook.
Apart from this, the Reserve Bank of Australia is set to release its third policy statement for 2016 on Tuesday, 5th April and is expected to leave the official cash rate at its record low of 2.00%, where it has been since May 2015. The RBA will monitor recent market disturbances, while keeping policy unchanged for the foreseeable future, but will stick with an easing bias.
Moreover, the RBA Governor Stevens in his latest comments said further cuts in interest rates remain on the table, but he must consider the longer-term risks of too low rates, i.e. the danger of excessive leverage. He also said that the real GDP growing at a slower pace and says easy monetary policy and lower AUD helping growth; therefore economy likely to expand at moderate pace.
We expect the central bank to lower its official cash rate in the future only if core inflation continues to move downward and if the economic growth statistics disappoint. Also, if unemployment and GDP growth fail to improve over the coming months, another cut will probably occur sooner rather than later.
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