RBA hikes rates
Not for the first time, markets have been having an absolute ball overnight on fresh news that the Iranian conflict might be soon drawing to an end.
Hardly something we haven't heard before, it must be said, but crude oil prices initially tumbled dramatically to under $90, before settling around -7 per cent lower on the day at around $95.
There now appears to be a greater prospect of oil prices dropping back to under $85/barrel, though this rollercoaster ride may have a few more twists in it yet.
Australia's 3-year bond yield has eased back down to where it was trading in early March, at 4.57 per cent, having briefly run above 4.9 per cent in March.
Earlier this week, the Reserve Bank of Australia hiked the cash rate target back to the previous cycle high of 4.35 per cent, with trimmed mean inflation forecasts pared back a little (to be back in the target band in the second half of next year, and down to 2½ per cent by June 2028).
Source: RBA, Statement on Monetary Policy
The RBA has now lifted the cash rate target in February, March, and May this year, so we may be due for a pause while an assessment is made of the impact of tighter policy, and any potential shifts in sentiment resulting from the forthcoming Federal Budget.
The central bank will be hoping that higher policy rates and the considerably stronger Aussie dollar (now up by more than 11 per cent over the past year versus the US dollar) will rein back inflation.
The higher Aussie dollar should help to make imported goods cheaper, such as for cars, petrol, electronic goods, and clothing, for example.
Still, market pricing suggests that the rate hiking cycle might have a way to go yet.
Another 25 basis points hike is priced in for later this year, with the terminal rate looking set to peak by March 2027.
The Federal Budget will be released in the evening of May 12, at 7.30pm AEST.
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