FX.co ★ AUS 10Y Yield Rises Toward Multi-Week Highs

Australia’s 10-year government bond yield climbed about 5%, approaching multi-week highs as renewed tensions in the Middle East reignited inflation fears. Oil prices rose after reports of Iranian attacks in the Strait of Hormuz and ongoing uncertainty over efforts to reopen this critical shipping route. Tehran is seeking to bar US and Israeli vessels from transiting the strait and is demanding compensation from countries it considers hostile.

The rise in energy prices has revived concerns about inflation and strengthened expectations that global interest rates may remain elevated for an extended period. In Australia, however, after three rate hikes earlier this year, markets are assigning almost no probability to an increase at next week’s Reserve Bank policy meeting, following softer-than-expected second-quarter inflation data. Investors also see little likelihood of a move in September, while pricing in roughly a 60% chance of a rate hike in November, contingent on third-quarter inflation coming in stronger than anticipated.