The Australian government bonds traded mixed Friday during a relatively quiet session that witnessed data of little significance as investors remained focused on the Federal Reserve and Bank of Japan’s monetary policy decision scheduled next week.
The yield on the benchmark 10-year Treasury note, which moves inversely to its price, remained steady at 2.165 percent, the yield on long-term 15-year note also dipped 1/2 basis point to 2.552 percent and the yield on short-term 2-year slid 4 basis points to 1.583 percent at 05:20 GMT.
The US CPI data are the last set of key data before the Fed meets next week. We doubt the picture here will change sufficiently to alter the inflation view held by the dovish FOMC members, reported ANZ.
Next week’s FOMC meeting is set to be interesting given the recent divergent Fed speak. The dovish view appears to be in the ascendency for now. We expect no change in policy. The Fed is extending its forecasts out to 2019. We expect there to be a flattening in the Fed’s median ‘dot plot’ with just one hike for this year and two hikes per year (compared to three in the June forecasts) thereafter, they added.
Moreover, the Bank of Japan will hold its two-day monetary policy meeting on 20-21 September, announcing its decision on Wednesday, 21 September is a close call. But, we foresee that the BoJ's 9-member policy board is likely to cut rates on excess reserves and expand its monetary base as stagnant growth and continued risk of deflation will weigh on BoJ Governor Kuroda’s decision.
According to recent Reuters poll, 60 percent of economists see the Bank of Japan easing in September 21; 40 percent see them stay unchanged. Pollsters are split on possible policy action and over 50 percent said the BoJ will adopt more flexible wording on inflation targeting.
Various articles published yesterday pointed to the higher probability that the Japanese central bank will lower its key policy rate by about 10-20 basis points. According to Nikkei daily paper and Reuters, the BoJ will cut its interest rate deeper into negative territory.
Although other news articles, including another one from Bloomberg, affirms that there are a variety of different opinions on the board and Governor Haruhiko Kuroda and his delegates reportedly prefer a rate move to expanding quantitative easing, which is thought to be reaching its limit. Therefore, this backs our expectation that the marginal deposit rate will be trimmed next Wednesday.
On Thursday, Australia's August unemployment rate declined to two-year low of 5.6 percent, as compared to the previous 5.7 percent in July. Surprisingly, employment data fell to 3.9K (seasonally adjusted) market was expecting a rise of 15K, as compared to the previous 25.3K. Additionally, the full-time jobs rose 11.5K while part-time jobs fell 15.4K.
Moreover, the Melbourne Institute Consumer Inflation Expectations lowered its inflation expectations for September to 3.3 percent, from 3.5 percent in August.
“The RBA would be relatively comfortable with today’s report. Although employment growth has slowed, the decline in unemployment is consistent with its view that the unemployment rate is grinding lower. Australia September consumer inflation expectations rose 3.3 percent, from 3.5 percent in August,” said ANZ in a research note.
Meanwhile, the benchmark Australia's S&P/ASX 200 index traded 0.29 percent higher to 5,279.5 by 05:20 GMT.
