Australia’s 10-year government bond yield dropped to around 4.8%, hitting its lowest level in twelve weeks as markets sharply reduced expectations for further rate hikes amid signs that earlier monetary tightening is beginning to filter through the economy. This comes after a softer-than-expected April inflation print and weaker consumer spending data earlier this week, as well as recent signs of cooling in the labour market, prompted investors to sharply cut the odds of a June rate hike to just 5%. Markets price in a 70% probability of one final move to 4.6% in the last quarter of the year. Attention now turns to a raft of economic data next week, including the final manufacturing PMI survey, the trade balance, and key GDP numbers, which will provide further clues on the economy’s health. Elsewhere, reports of a preliminary agreement between the US and Iran, including the potential reopening of the vital Strait of Hormuz, weighed on oil prices and lifted global risk sentiment.

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