Australia’s biggest story this week was in many ways a whole lot of nothing.

The Reserve Bank of Australia didn’t change its cash-rate target on Tuesday, and that was expected by all. But it also left the statement largely untouched -- dashing speculation that Governor Philip Lowe was going to follow global peers in a tilt to the hawkish side.

That sent the Aussie dollar and yields tumbling. One bidder at Wednesday’s government auction got excited enough to snap up all A$800 million ($608 million) of the bonds offered -- the most on record to go to a single direct purchaser.

The RBA subtly pushed back at other major central banks who recently signaled their certainty that jobs growth would bring inflation back, with Lowe indicating policy makers Down Under are waiting to see if wages respond to a burst of hiring. The Aussie dropped 0.7 percent Tuesday and as of late Thursday was 1.1 percent down for the week. The government bond market had its best day for six weeks.

That was the context for a corker of an auction on Wednesday when a single bidder showed the biggest relative appetite on record for the notes on offer. It was the first sale to go to just one purchaser since August 2013 and the A$3.6 billion of total bids made was the third-largest on record for any auction of notes maturing in more than 10 years.

Appetite for Aussie debt has been strong this year. The latest evidence came with International Monetary Fund data on central banks and where they are investing the $8.8 trillion in reserves they are willing to tell us about. Reserve managers’ holdings of the world’s fifth-most traded currency rose to a record in the first quarter, even though the extra yield Aussie bonds offer over Treasuries has almost evaporated.

The RBA is in something of a tight corner as it strives to balance concerns that record-low interest rates are blowing a bubble against a softening economy -- policy makers dropped a previous forecast for 3 percent gross domestic product growth in this week’s statement. And as the chart above shows, those bubble worries could deflate soon enough if building approvals are a guide

Source:
courtesy of BLOOMBERG

by Garfield Clinton Reynolds

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