AUS 10Y Yield Holds Below 9-Week High

Australia’s 10-year government bond yield held its recent decline to around 4.9%, below a nine-week high reached on July 24, as investors continued to assess the policy outlook ahead of the Reserve Bank’s meeting next week. Latest data showed household spending rose 0.8% in June, well above forecasts of 0.2%, driven by another increase in discretionary spending, while annual growth accelerated to 6.0%, also exceeding expectations. The data supported the central bank’s view that consumer activity remains firm despite weak sentiment, although recent softer inflation and a cooling housing market have strengthened expectations that the RBA will leave its 4.35% cash rate unchanged next week. Markets are also pricing little chance of a rate hike in September, while assigning roughly a 50% probability of a move in November if third-quarter inflation proves stronger. Investors now await upcoming final PMI figures and trade balance data this week for further clues on the economy’s health.

Australia’s 10-year government bond yield fell to around 4.9%, easing from multi-week highs as softer inflation figures reduced expectations of further interest rate hikes. Headline inflation unexpectedly eased to a four-month low of 3.8% in June from both May's reading and forecasts of 4.0%, while monthly consumer prices unexpectedly fell 0.1% for a second straight month. Meanwhile, the closely watched trimmed mean inflation rate rose 3.6% annually, below expectations of 3.7%, while quarterly core inflation increased 0.8%, also undershooting forecasts. Although inflation remains above the RBA’s 2%–3% target range, markets sharply scaled back bets on another rate hike this year to around 50% from more than 90% before the release. The softer readings also reinforced the view that the central bank is unlikely to resume policy tightening at its August 11 meeting. Still, the RBA's governor recently warned that another rate hike may still be needed to bring inflation back to target.

Australia’s 10-year government bond yield fell below 5%, easing from a ten-week high as oil prices retreated following a pause in the US-Iran conflict. The US suspended its nearly two-week campaign of strikes against Iran, while Tehran said it had ended its retaliatory attacks and held talks with Oman over the Strait of Hormuz. Meanwhile, RBA Governor Michele Bullock said another interest rate hike may still be needed to bring inflation back to target, but stressed that the near-term outlook remains highly uncertain. She noted that further moderation in domestic demand and labor market conditions would likely be needed to judge whether previous tightening has been sufficient. Markets trimmed the odds of an August rate hike to around 20% from about 30%, though investors continue to expect the cash rate to reach 4.60% by year-end. Focus now turns to Wednesday's second-quarter CPI report, with core inflation expected to accelerate to 3.7%, remaining above the RBA's 2%–3% target range.