Australia’s 10-year government bond yield remained above 5% on Friday, holding at its highest level in a month as investors assessed the likelihood of an interest rate increase by the Reserve Bank of Australia next week. Markets are largely pricing in a 25 basis point hike on May 5, which would mark a third consecutive rise and push the cash rate to 4.35%.
Expectations are also strengthening that the cash rate could reach 4.60% or higher by year-end, reflecting persistent inflation concerns exacerbated by the closure of the Strait of Hormuz. Australia’s annual inflation rate quickened to 4.6% in March, significantly above the RBA’s 2–3% target range and the highest level recorded since the introduction of monthly CPI reporting in 2025.
In contrast, activity data showed some resilience: the manufacturing PMI rose to 51.3 in April 2026, surpassing both the preliminary estimate of 51.0 and March’s reading of 49.8, signaling a return to expansion. Meanwhile, producer prices for final demand increased 0.4% quarter-on-quarter in Q1 2026, easing from a revised 0.8% gain in Q4 2025 and coming in below the expected 0.9% rise.
