Australian dollar knocked lower by commodities, Fed mood

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US two-year yields, which reflect interest rate expectations, rose to 2.98 per cent, the highest since December 2018, before dipping back to 2.86 per cent. The 10-year rate stood at 2.90 per cent after reaching 2.98 per cent last week, also the highest since December 2018.

In Australia, three-year bond yields touched 2.74 per cent, for the first time since late 2014, and the 10-year rate topped a seven-year peak of 3.16 per cent.

Interbank futures imply an 82 per cent chance of a 40 basis point increase from the Reserve Bank of Australia in June, and a 65 per cent chance of a half a percentage point increase, in thin trading. Traders expect the cash rate to rise sharply to 2 per cent by November from the record low 0.1 per cent currently.

They are wagering around a 50-50 chance the Reserve Bank could start raising rates as soon as next week, with a smaller increase of 15 basis points, but economists believe this is unlikely due to the federal election campaign.