Australia’s 10-year government bond yield declined about 5% as oil prices fell, following a pause in the US–Iran confrontation. The US halted its nearly two-week campaign of strikes against Iran beginning late Friday, while Tehran announced it had ended its retaliatory attacks and held talks with Oman regarding the Strait of Hormuz.
Even so, Australian yields remained close to a two-month high amid persistent concerns over inflationary pressures. The second-quarter CPI report, due Wednesday, is expected to show core inflation rising 0.9% on the quarter, pushing the annual rate to 3.7% from 3.5%. Such an outcome would keep inflation well above the RBA’s 2%–3% target band, reinforcing expectations that policymakers will retain a tightening bias.
Money markets currently assign about a 40% probability that the RBA will raise its 4.35% cash rate in August, with an increase by November almost fully priced in. Attention is also turning to the upcoming US Federal Reserve policy meeting, where interest rates are widely expected to be left unchanged.
