Australia’s 10-year government bond yield dropped to around 4.14% on Wednesday, hovering near its lowest level since early May, as investors reacted to weaker-than-expected monthly CPI data. Australia’s consumer prices rose by 2.1% year-on-year in May, coming in below market forecasts of a 2.3% increase and easing from a 2.4% growth in April.
The softer inflation print, along with recently disappointing GDP figures, reinforces expectations of further rate cuts from the Reserve Bank of Australia. Markets are implying around an 80% chance the RBA will trim its 3.85% cash rate by 25bps in July, with a total of 73 bps of easing anticipated by year-end. Meanwhile, in the US, Fed Chair Jerome Powell stuck to his cautious approach during his testimony to Congress on Tuesday, reiterating that the Fed was in no rush to cut rates. On the geopolitical front, investors continue to monitor developments in the Middle East, particularly the fragile ceasefire between Iran and Israel.
