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Aust bond prices drop on Yellen comments

The US Fed’s chair Janet Yellen has said previously that she would only consider an interest rate rise once the jobs market had improved, and if the next set of figures – due in a month – are equally positive then economists say a rate rise is certain.

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The gold price was relatively flat during Asian trading hours on Thursday after plunging overnight as the U.S. dollar soared following positive USA data and remarks from Federal Reserve chair Janet Yellen that a December rate lift-off was possible.

It noted that the Fed had changed its economic model recently, where it was found that the new model indicates a full employment level at 4.9%, and the U.S. economy is expected to reach its 2% inflation target in medium term.

In a recent speech, Evans said he thought the fed funds rate could still be under 1% at the end of 2016.

“Certainly jobless claims are not what’s moving the markets this morning”, said Joseph Trevisani.

The chances for a December rate hike are now perceived as higher than 50 percent after Yellen laid out what appeared to be the base case that the economy is ready for higher rates.

“At this point, I see the U.S. economy as performing well”, Yellen said on Wednesday in testimony before the House Financial Services Committee in Washington. Job gains last month were broad-based, though manufacturing lost 2,000 positions. The Fed is now keeping inflation low to help jumpstart the economy, but it may allow a few more into the system as it raises rates. In its September meeting, the Fed held off the first rates hike off their historic lows citing the global economic slowdown.

Gold fell to its lowest in more than a month at $1,106 an ounce in its sixth straight session of losses as a rising dollar and talk of a near-term hike in USA rates kept it under pressure. Minutes from the Fed’s October 27-28 meeting and subsequent comments from Yellen have firmly put the December increase on the table. She downplayed concerns by some committee Democrats that a rate hike could push up mortgage rates and slow the housing recovery, saying subsequent increases the next few years are likely to be gradual.

“We’ve got two more payrolls before the Fed meets in December so it’s reasonably important”, said Imre Speizer, senior market strategist at Westpac Banking Corp in Auckland.

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As the central bank approaches the critical decision, there has been division at the highest levels over whether the time is right.

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