Growth Expected to Slow as Wage Decision Complicates RBA Outlook

• Australia’s current account deficit blew out to $27.1bn in Q1 2026, well above the $23bn consensus, adding to a softening growth picture ahead of today’s GDP print. With Q4 2025 GDP at 0.8% QoQ and the market now expecting just 0.5%, the data confirms the domestic economy was losing momentum well before recent energy shocks – a dynamic the RBA will need to weigh carefully as it balances slowing growth against still-elevated inflation.
• The Fair Work Commission’s decision to lift award wages 4.75% and minimum wages 6% adds a meaningful inflation risk that is difficult to look through. Approximately one-third of the workforce directly or indirectly will be affected, the flow-through to services inflation and labour costs keeps the RBA’s job harder for longer – supporting the case for rates staying higher than the market may currently be pricing.
• Unresolved US-Iran negotiations kept oil prices and bond yields biased higher overnight, with Australian 10-year yields rising 5bps to 4.94%. For fixed income investors, elevated geopolitical risk premium in energy markets remains a headwind to duration, particularly in an environment where domestic inflation is already sticky. Markets are now pricing a 55% probability of an RBA hike in August.
• Offshore, strong US JOLTS data reinforced labour market resilience and the higher-for-longer narrative, with Friday’s nonfarm payrolls now shaping up to be a key factor for global yields.