Australia’s 10-year government bond yield dropped below 4.8%, hitting a fifteen-week low as global oil prices continued to slide on optimism over the reopening of the Strait of Hormuz. The US and Iran are expected to sign an interim peace agreement in Switzerland on Friday, which is seen restoring oil flows through the Persian Gulf and easing inflation concerns. Meanwhile, the Reserve Bank of Australia signaled further tightening to restrain inflation. Despite holding interest rates steady at its June meeting to assess the full impact of three rate hikes earlier this year, Governor Michele Bullock emphasized that inflation remains too high and reiterated that further rate increases cannot be ruled out. While markets increasingly suspect that the tightening cycle is over, the RBA’s hawkish tone has kept a roughly 50% chance of one final hike this year priced in, but the odds of an August move stands at just 25%. The upcoming May CPI report due next week will be pivotal for the outlook.

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