Australia’s 10-year government bond yield hovered around 5%, moving sideways near multi-decade highs as investors closely tracked developments in the Middle East conflict. US President Trump issued an ultimatum to Iran to reopen the Strait of Hormuz, warning of strikes on bridges and power infrastructure if Tehran failed to comply. Iran rejected both the demand and a mediated ceasefire proposal, keeping geopolitical risk elevated.
On the domestic front, momentum has softened. The services PMI recorded its steepest decline since November 2023, and the composite index slipped into contraction in March for the first time in about 18 months. Even so, earlier data pointed to underlying resilience: household consumption rose in February, and job vacancies increased 2.7% in the three months to February, indicating a still-tight labour market. Given that household spending—accounting for more than half of GDP—remains central to the Reserve Bank’s policy considerations, markets now assign roughly a two-in-three probability to a rate hike in May.
