FX.co ★ Australia 10Y Yield Falls After Soft GDP Data

Australia’s 10-year government bond yield slipped below 4.9%, hovering near an eight-week low, after weaker-than-expected GDP data bolstered expectations of fewer interest rate increases. The economy expanded just 0.3% in the first quarter, missing the 0.5% consensus forecast and slowing from 0.9% previously. Annual growth of 2.5% also undershot expectations, underscoring evidence that higher borrowing costs are dampening demand.

The softer data will feed into the Reserve Bank of Australia’s June 15–16 policy meeting, where officials will judge whether current settings are tight enough to steer inflation back to target following three rate hikes so far this year. The decision comes amid heightened geopolitical tensions in the Middle East, which have driven up global energy prices and added to external inflation pressures.

RBA board member Ian Harper warned that market-based measures of future inflation are edging higher, calling this a troubling sign for inflation expectations. Even so, markets have largely dismissed the prospect of another rate increase this month, while pricing in roughly even odds of a move in August.