Australia 10-Year Yield Falls on Soft Inflation Data

Australia’s 10-year government bond yield dropped to 4.27%, approaching a three-week low, after a surprisingly benign inflation report strengthened expectations of an interest rate cut next month. Headline inflation eased to 2.1% in the second quarter, from 2.4% in the previous period and slightly below the forecast of 2.2%. More significantly, the “trimmed mean” measure of inflation—the Reserve Bank’s preferred gauge of underlying price pressures—slowed to 2.7% from 2.9%, marking further progress within the central bank’s 2–3% target band. The inflation print follows a weak jobs report, which showed the first clear sign of softening in what has been a notably resilient labor market. Markets are now pricing in a near 100% probability of a 25bps cut at the RBA’s next meeting in August, with rates expected to fall to 3.10% by year-end.