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Australian bonds edge higher on hopes of weak retail sales data; markets to watch U.S. treasuries move

Australian bonds edge higher on hopes of weak retail sales data; markets to watch U.S. treasuries move

Australian bonds gained on the first trading day of the week Monday as investors moved into safe-haven buying ahead of the retail sales data, where the growth is expected to dip to 0.2 percent m/m in March, down from 0.6 percent m/m increase seen in February.

The yield on Australia’s benchmark 10-year Note, which moves inversely to its price, fell over 2 basis points to 2.761 percent, the yield on the long-term 30-year Note dipped 2-1/2 basis points to 3.283 percent and the yield on short-term 2-year slumped nearly 1-1/2 basis points to 2.023 percent by 03:30 GMT.

In the United States, Treasuries were little changed to finish off the week on Friday, holding relatively tight ranges as markets absorbed an April employment report full of mixed signals. On one hand, headline unemployment managed to reach its lowest level since December 2000, though was entirely attributed to a net pullback in the labour force with only a meager +3K increase in household employment. With respect to an institutional survey, markets received a weaker than expected rebound in non-farm payrolls, though was not lacklustre enough to sounds alarms supporting the narrative of dampened further gains as employment expansion continued to mature.

From an average hourly earnings perspective, the April report was largely seen as a push for both hawks and doves with only a +0.1 percent m/m increase registered for wage growth. However, given the scope of gains seen across most inflation measures in recent months, the notion that scant wage gains will keep inflation under wraps should be seen as relatively short-sighted. Markets now look ahead to a lighter flow of data in the week ahead, highlighted by April CPI data on Thursday. Additionally, markets receive 3-year Note, 10-year Note and 30-year Bond auctions on Tuesday, Wednesday and Thursday, respectively.

Moreover, the bonds investors still follow the dovish statement from the Australian central bank on Friday, where the RBA noted that March quarter inflation outcomes were broadly in line with the forecast in the February Statement on Monetary Policy and confirmed that inflation remains low but stable. The low inflation outcomes reflect spare capacity in the economy and the associated low wages growth, as well as the ongoing downward pressure on retail prices due to increased competition in the sector.

On the other hand, the central bank said that Australia’s GDP growth is expected to hit 3.25 percent by December 2018, though the unemployment rate has missed the expected level and inflation is unlikely to reach its target until 2020, which means the interest rates will continue to stay at record lows of 1.5 percent.

Meanwhile, the S&P/ASX 200 index traded 0.32 percent lower at 6,073.5 by 03:40 GMT, while at 03:00GMT, the FxWirePro’s Hourly AUD Strength Index remained slightly bullish at 81.74 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend).

Source: FXWire Commentary

 

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