FX.co ★ Australia 10Y Yield Remains Above 5%

Australia’s 10-year government bond yield held above 5%, moving sideways near multi-week highs as investors assessed the Reserve Bank of Australia’s August meeting minutes. The Board concluded that the current cash rate is sufficiently restrictive to return inflation to target within a reasonable timeframe. However, several members judged there to be a significant risk that inflation could remain more persistent than anticipated.

The RBA kept the cash rate unchanged at 4.35% for a second consecutive meeting two weeks ago, following three increases earlier this year, but policymakers reiterated that further tightening remains possible if inflation risks materialize. That said, softer labor market data has dampened expectations of an imminent move, with markets assigning only a 13% probability to a rate hike in September, while pricing in around a 67% chance of an increase by February 2027.

Attention now turns to Wednesday’s release of monthly inflation figures. Headline inflation is expected to slow to 3.2% year-on-year from 3.8%, even with a 0.8% monthly rise, while the trimmed mean measure is forecast to edge down to 3.5% from 3.6%.