FX.co ★ Australia 10-Year Yield Holds Near 2-Year Highs

Australia's 10-year government bond yield remained unchanged at 4.84%, maintaining close proximity to a peak not seen in over two years. This steadiness is attributed to a notably hawkish shift in the Reserve Bank's perspective. On Tuesday, the Reserve Bank of Australia increased its cash rate by 25 basis points to 3.85%, as anticipated, marking its first hike in over two years. This decision was prompted by persistent inflationary pressures and stronger-than-expected economic growth. The central bank has also cautioned that inflation is likely to exceed its target range of 2-3% for a prolonged period, possibly not returning to desirable levels for at least one to two years, even with a forecasted cash rate rise to 4.3%. This outlook has led investors to increase their expectations for a subsequent rate hike in May, currently priced in at roughly 80%, with the likelihood of a third adjustment appearing more probable in the latter part of the year. From an economic perspective, Australia's trade surplus slightly surpassed expectations in December, driven by an increase in exports while imports declined.