Australia’s 10-year government bond yield has risen to around 5%, its highest level since May 20, after stronger-than-expected employment data bolstered expectations of another interest rate increase. The economy added 76,300 jobs in June, the largest monthly gain since April of last year and far above the consensus forecast of 15,300. The unemployment rate remained at 4.4% as expected, while the participation rate climbed to a one-year high of 67%.
The robust labor market figures underscored persistent tightness in labor conditions and led markets to raise the implied probability of another rate hike by year-end to 90%, up from 78% previously. Together with higher oil prices amid renewed conflict in the Middle East, the strong jobs report has heightened uncertainty around the inflation outlook and increased pressure on the Reserve Bank of Australia to maintain a restrictive policy stance.
Investors are now focused on next week’s release of second-quarter inflation data. Core inflation is expected to accelerate to 3.7% year-on-year from 3.5%, remaining well above the RBA’s 2%–3% target range.
