Thanks for reading our third Economy & Property Market Watch for 2026.
The RBA has increased the cash rate by a further 25 basis points to 4.35% at its May meeting, marking the third increase in 2026 and the fourth overall in the current tightening cycle.
The March quarter CPI result showed headline inflation at 4.6%, the highest since September 2023. While trimmed mean inflation held at 3.3%, in line with expectations, this wasn’t enough of a hold. Automotive fuel rose 32.8% in March alone.
"The Scorecard" is updated to reflect the available data as at May 2026. The 'Previous (March)' column reflects the starting position at the last edition.
The headline numbers point to a more concerning story than in March.
Inflation has accelerated sharply, unemployment has edged up to 4.3%, and the 10-year bond yield is now around 5%, a level last seen in 2011.
The AUD has strengthened to its highest level since June 2022 as markets price in further rate tightening. These numbers could remain volatile for a while.
CPI rose sharply from 3.7% in February to 4.6%, the highest annual rate since monthly CPI reporting began. The primary driver was automotive fuel, up 32.8% in March alone following the effective closure of the Strait of Hormuz. Housing inflation at 6.5% and transport costs at 8.9% over the year were also significant contributors.
Trimmed mean inflation held steady at 3.3% year-on-year but rose 0.8% on a quarterly basis, marking a third consecutive quarterly increase, with this trend likely to continue.
The labour market is tight, though the overall participation rate eased slightly to 66.8%. Anecdotally, there are challenges ahead.
Looking to June
The RBA's next meeting is on 16 June, and the Board will continue to take a meeting-by-meeting approach. Whether higher fuel prices become embedded in expectations is a central risk the Board will monitor.
April's monthly CPI (due late May) will be the key input. If fuel prices have stabilised and the trimmed mean holds around 3.3%, the Board may opt to hold and assess. If the pass-through of fuel costs into broader price expectations is evident, the tightening is likely to continue.
The NAB Monthly Business Survey for Q1 2026 showed conditions holding steady, but confidence weakening materially. Business confidence fell to -4 index points, the lowest since December 2024. Conditions eased 1 point to 7, still positive but possibly losing momentum. The survey was fielded before the full force of the March oil shock and may show further deterioration in the Q2 edition.
The year started out okay, but elevated uncertainty is expected to slow consumer spending and business investment through 2026. NAB revised its household consumption growth forecast down to around 1% in 2026, from 2.4% in 2025.
Business confidence collapsed to -29 in March, perhaps unsurprisingly, marking the second-largest monthly drop on record. Wage pressures remain a significant constraint, with firms reporting that labour is a key challenge.
Conditions are uneven across sectors and states: finance, business services and property hold up better than retail, accommodation and food. Victoria continues to lag, while Queensland and Western Australia continue to lead.
The commercial property outlook is mixed, with further pressure to cap rates for secondary assets. Industrial and prime logistics continue to lead income resilience.
Prime, well-located assets that offer quality tenant covenants are still in demand. Secondary offices with higher vacancies face ongoing repricing pressure. For retail, tenant quality is a trending driver.
The June meeting and the April CPI release will be the key signposts to watch here.
The residential market is changing. National dwelling values rose just 0.3% in April, the slowest monthly gain since January 2025, due to Sydney and Melbourne both falling 0.6% over the month. However, Brisbane, Adelaide and Perth continue to record growth. Total residential property values rose to $12.6 trillion in March.
The slowdown was underway before the last rate increase, driven by low affordability, deteriorating mortgage serviceability, and stretched household budgets. Higher interest rates have accelerated the adjustment. Overall, capital city home sales are 5.4% lower than a year ago. An uptick in advertised stock in the weakest markets could signal some improvement in conditions for buyers.
Capital City Housing Performance in April 2026
| Location | Month | Quarter | Annual |
|
Adelaide
|
0.8% |
3.1% |
11.4% |
|
Brisbane
|
1.1% |
3.8% |
16.2% |
|
Melbourne
|
-0.6% |
-1.0% |
4.1% |
|
Sydney
|
-0.6% |
-0.7% |
6.0% |
|
Perth
|
1.9% |
5.5% |
20.8% |
|
All Capitals
|
0.3% |
1.5% |
8.4% |
|
All Regionals
|
0.6% |
2.1% |
9.8% |
Source: Cotality Home Value Index, April 2026.
The Australian 10-year bond yield is holding firmly above 5%. This is the highest sustained level since 2011 and reflects both the domestic tightening cycle and ongoing global energy risk repricing amid Middle East uncertainty. The yield curve is steeply upward-sloping, with the 2-year yield above 4.5%, maintaining upward pressure on fixed-rate mortgage and business lending rates.
Globally, the US Federal Reserve held rates steady this week, monitoring the energy inflation risk while awaiting clearer data. UK and European central banks are similarly in a holding pattern. The Bank of Japan continues on its cautious normalisation path but faces imported inflation risk given Japan's heavy dependence on Persian Gulf oil.
|
Country |
Cash Rate | 10 Year | Spread |
| Australia | 4.35% | 5.00% | 0.65% |
| Canada | 2.25% | 3.50% | 1.25% |
| India | 5.25% | 6.99% | 1.74% |
| Japan | 0.75% | 2.52% | 1.77% |
| New Zealand | 2.25% | 4.75% | 2.50% |
| UK | 3.75% | 4.97% | 1.22% |
| USA | 3.75% | 4.38% | 0.63% |
Australia's spread over the US 10-year has tightened following the strong US equity rally and easing of US recession fears. The RBA's cash rate is now the highest in this peer group, alongside India, reinforcing carry interest in the AUD.
The Australian equity market staged a partial recovery heading into the RBA decision. The All Ordinaries is up from the March lows but still reflects the drag from rising yields and geopolitical uncertainty. Resources and energy stocks have provided support, as commodity prices remain elevated. Financials are mixed: higher rates benefit net interest margins, but the credit quality outlook is softening.
On a 12-month basis, the index remains up around 7%, but the near-term environment is more challenging than a year ago. Performance continues to lag the recovering US and Japanese markets.
Global equity markets have recovered materially from the March selloff. The Dow Jones has bounced, supported by strong Q1 US corporate earnings, optimism about oil prices and AI investment underpinning GDP. The Nikkei has surged to past 60,500, recovering the ground lost in March and reaching new highs. FTSE and DAX have also recovered, though both remain below their February peaks. Not much in the way of risk is priced in.
|
Country |
Market |
1 Mth |
6 Mth |
1 Yr |
5 Yr |
|
|
Australia |
All Ords | 0.5% | -2.5% | 6.8% | 22.5% | |
|
Germany |
DAX | 5.2% | 0.8% | 4.2% | 58.2% | |
|
Japan |
Nikkei | 12.4% | 15.1% | 61.1% | 98.8% | |
|
UK |
FTSE |
0.4% | 6.7% | 19.9% | 45.4% | |
|
USA |
Dow Jones |
6.5% | 5.5% | 18.5% | 46.9% | |
|
Average |
4.91% | 5.12% | 22.5% | 54.36% |
The Australian dollar has reached 72c against the US dollar, its highest level since June 2022, and is up around 12% over the past 12 months. The primary driver remains the market's expectation of further RBA tightening, as we are broadly the outlier among developed economies in this regard.
Higher commodity prices linked to energy disruption have provided further support for commodity currencies.
For import-focused businesses, AUD at 0.72c provides meaningful relief on USD-denominated input costs. For exporters, the sustained strength is becoming a competitive headwind.
Let's hope a calmer tone on the Iran situation builds through to June.
2026 RBA Monetary Policy Announcements
Thank you for reading Market Watch. The next RBA cash rate announcements will be at 2:30pm on the following Tuesdays in 2026:
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Disclaimer: This Market Watch is prepared for general information purposes only and does not constitute financial advice. MCP Financial Services recommends you seek independent advice before making any financial decisions.