AU Evening Wrap: Australia Shares Slip 0.15% Amid Materials Weakness

The Reserve Bank of Australia (RBA) resumed discussions of interest-rate hikes at its May policy meeting, but ultimately decided to stand pat given the risks around its economic forecasts. The RBA's minutes of its May 6-7 gathering showed that the board discussed two options before leaving the key rate at 0.1%, noting that the risks were still "balanced" despite stronger-than-expected data leading up to the meeting. The minutes suggest that rates are likely to stay higher-for-longer, and as a result, Australian government bonds have declined and the policy-sensitive three-year yield has risen for a third straight day. Swaps traders now see the RBA staying on hold until mid-2025.

Australian consumer sentiment deteriorated further in May, due to concerns over sticky inflation and the prospect of high interest rates for a longer period of time, which left little optimism over the economy. The Westpac-Melbourne Institute consumer sentiment index fell 0.3% to 82.2 in early May, extending declines after sliding 2.4% in April. The index was close to record lows seen during the 2020 COVID-19 pandemic, as a rising cost of living kept consumers largely pessimistic about the economy. The survey highlights the challenges facing Australia's economic recovery, as consumers remain cautious amid uncertainty over the global economic outlook and the impact of inflation on their purchasing power.