AUS 10Y Yield Holds as RBA Decision Looms

Australia’s 10-year government bond yield held above 4.9%, staying near multi-week highs as investors looked ahead to the Reserve Bank of Australia’s monetary policy decision on Tuesday. The central bank is widely expected to keep its cash rate unchanged at 4.35% for a second straight meeting, although policymakers are expected to maintain a hawkish stance as inflation remains elevated. Markets are pricing around a 50% probability of another 25-basis-point rate hike by year-end, while traders will closely watch the RBA’s updated forecasts and Governor Michele Bullock’s comments for clues on the future policy path. Elsewhere, persistent uncertainty over efforts to reopen the Strait of Hormuz drove oil prices higher and fueled concerns over elevated inflation. Iran said talks with Oman on a shipping route through the strait were nearing an agreement, but stressed that the waterway would not reopen immediately, while Tehran also rejected direct talks with the US for now.

Australia’s 10-year government bond yield rose around 5%, moving toward multi-week highs as renewed tensions in the Middle East revived inflation concerns. Oil prices climbed following reports of Iranian attacks in the Strait of Hormuz and a lack of clarity on an agreement to reopen the crucial waterway. Tehran is seeking to restrict US and Israeli vessels from using the waterway while demanding compensation from countries it considers hostile. Higher energy prices reignited inflation concerns and reinforced expectations that global interest rates could remain higher for longer. In Australia, after three rate hikes this year, markets are pricing in virtually no chance of a rate increase at the Reserve Bank's policy meeting next week following softer-than-expected second-quarter inflation data. Investors are also assigning little chance of a move in September, while pricing roughly a 60% probability of a rate hike in November if third-quarter inflation proves stronger than expected.

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 of Australia’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 Reserve 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 central bank 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 trade balance figures this week for further clues on the economy’s health.