After the monthly board meeting the RBA confirmed it had a moderate easing bias and while the March quarter GDP data was stronger than expected, the key areas of consumer spending and investment remain weak. The market is likely to continue to price in the risk of a rate cut over the months ahead (swinging between zero and 25 basis points of cuts) and this should keep the yield curve trading in a tight range. As for the longer end, while the Australian Dollar remains below USD0.80, any sell off (rise) in bond yields should attract good offshore buying interest, keeping a lid on any rise in yields.
That said, there is still an easing bias factored in by the futures market, with the low in the cash rate being pushed out to late this year.
Last week’s March quarter economic growth number revealed a heavy reliance on the mining sector, with a 0.3% contribution out of the 0.9% for the quarter. In addition, the worst ever trade deficit of $3.9bn in April, a result of falls in coal and iron ore exports, highlights the need to invest more time, effort and money into alternate sources of export-generating industries. Within this data I note that an 11.8% increase in rural exports for the March quarter was a good start to increasing the diversity of growth from our export sectors.