Australia’s 10-year government bond yield fell below 4.8%, reaching a fifteen-week low as global oil prices declined further on optimism about the reopening of the Strait of Hormuz. The United States and Iran are expected to sign an interim peace agreement in Switzerland on Friday, a development that is anticipated to restore oil flows through the Persian Gulf and alleviate inflation pressures.
Domestically, the Reserve Bank of Australia signaled that further monetary tightening remains on the table to contain inflation, even though it left interest rates unchanged at its June meeting. The RBA paused to gauge the full impact of three rate hikes implemented earlier this year, but Governor Michele Bullock stressed that inflation is still too high and reiterated that additional rate increases cannot be ruled out.
The hawkish messaging strengthened expectations of another rate rise this year, with markets now assigning roughly a 30% probability to a move in August and about a 60% chance of one final hike, taking the cash rate to a peak of 4.6%. The May CPI report, due next week, will be crucial in shaping the policy outlook.