Australian Bonds to Weaken Further on fED Rate Hike Expectation
The Australian bond market is weaker and it is expected to weaken further as investors continue to absorb the U.S. Fed's interest rate outlook. Meanwhile, the benchmark 10-year bond yield closed lower -0.39% on Thursday.
“Australian bond market continued to grapple with the U.S. Fed's Federal Open Market Committee's rate hike delay and more subdued economic outlook”, said St George, senior economist at Josephine Horton.
"Bond yields are a bit under pressure and bond prices have received support as the market continues to digest last week's news from the FOMC," she added.
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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