Australia 10-year Treasury yields, ASX 200 portray pre-RBA anxiety

• Market sentiment in Australia remains divided as traders brace for RBA’s second rate lift.
• Aussie 10-year bond coupon snaps two-day downtrend around 3.50%.
• ASX 200 breaks two-week-old support, drops for the second consecutive day.
• Indecision between 25 bps and 40 bps rate hike makes today’s RBA decision interesting.

Aussie market players remain cautious amid hopes of a stronger rate hike from the Reserve Bank of Australia (RBA), as well as chatters surrounding the Fed’s interest rate moves.

While portraying the mood, Australia’s benchmark 10-year Treasury yields rise 0.95% to 3.52% by the press time. In doing so, the Aussie bond coupons print the first daily gains in three.

On the other hand, S&P/ASX 200 index, the leading Aussie equity gauge, drops 0.63% to 7,160. It’s worth noting that the share price index broke fortnight-long support as sellers attack a one-week low.

Elsewhere, Australia’s AiG Performance of Services Index eased below 57.8 prior to 49.2 and exerted additional downside pressure on the Aussie equities, while also favoring the yields.

It’s worth noting that headlines from China and anxiety ahead of the US Consumer Price Index (CPI), as well as the European Central Bank (ECB) meeting, seem to propel the Aussie yields of late. That said, China Securities Journal (CSJ) praised the country’s virus control and policy stimulus while expecting economic improvement in the second half (H2) of 2022. Previously, Beijing’s ability to overcome the pandemic and citing preparations to recover from the economic loss with faster unlocks joined US President Joe Biden’s likely easy stand for China, as far as showing readiness to remove Trump-era tariffs, seemed to have favored sentiment and tested the US dollar’s safe-haven appeal, which in turn favored the Aussie equities before the fall.

Given the downbeat yield and equities in Australia, coupled with the market’s cautious mood, the AUD/USD continues to consolidate the biggest daily jump in a month during the three-day downtrend around 0.7180 by the press time.

To sum up, traders appear nervous ahead of the Reserve Bank of Australia’s (RBA) anticipated rate hike. However, indecision between the 25 bps and 40 bps move, despite major support for the softer one, keeps AUD/USD prices pressured ahead of the key event.

Also read: Reserve Bank of Australia Preview: Rate hikes are here to stay