FX.co ★ Australia 10Y Yield Attempts Rebound

Australia’s 10-year government bond yield climbed toward 5%, rebounding from a one-week low after the Reserve Bank of Australia highlighted the inflation risks posed by a global oil shock amid ongoing tensions in the Middle East. The central bank cautioned that a global supply shock stemming from the conflict could push inflation and long-term inflation expectations higher, particularly in an environment of persistent capacity constraints. Assistant Governor Chris Kent emphasized that such shocks typically drive up prices and dampen growth, limiting the scope for monetary policy to fully offset their effects and instead shifting the priority to preventing inflation from becoming entrenched. Financial markets now assign a probability of more than 70% to a rate hike in May, up from around 60% on Wednesday. At the same time, mixed signals from the US and Iran over potential negotiations kept oil prices elevated. While Washington signaled efforts to move talks forward and reduce tensions, Tehran rejected ceasefire proposals, and the increased deployment of US troops in the region intensified concerns about further escalation.