The Australian dollar and bond yields have both experienced gains following the release of stronger-than-expected inflation data for January. This data has bolstered expectations that the Reserve Bank of Australia (RBA) will implement further cash rate increases in an effort to curb rising prices. The Aussie dollar saw an increase of 0.2 per cent, reaching US70.71¢. Earlier in the month, it had peaked at a three-year high of US71.47¢.
Bond markets reacted similarly, with Australia’s three-year government bond yield, which closely reflects interest rate expectations, climbing by 4 basis points to reach 4.29 per cent. The 10-year government bond return also saw an increase, gaining 3 basis points to settle at 4.72 per cent. These movements indicate a growing anticipation of tighter monetary policy in the near future as the RBA seeks to manage inflationary pressures.
Financial markets are currently pricing in a significant probability of further interest rate adjustments. Money markets imply a 76 per cent chance of a rate hike occurring in May. Furthermore, a rate hike is fully priced for June, suggesting a strong consensus among investors that the RBA will continue its tightening cycle in the coming months in response to persistent inflationary pressures.
