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• Longer Middle East disruption lifts peak prices for oil and gas, lengthens recovery. Infrastructure damage exacerbates the shock. Brent oil now expected to peak at an average $120/bbl in Q2 and Japanese LNG prices at $26mmbtu.
• Australian CPI inflation now expected to peak at 5.4%yr in June quarter, and even higher on the monthly series, despite the announced cut to fuel excise. Trimmed mean inflation peaks around 4% in 2026 H2. Food prices a particular concern through to 2028, but broader passthrough to non-energy prices also an issue.
• RBA now expected to hike rates three times (May, June, August), revised up from one more (in May) previously. Peak cash rate now 4.85%, above previous peak.
• Supply shock and tight monetary policy drag on demand, especially consumption and other interest-sensitive sectors. GDP growth forecast to trough at 1%yr in 2027; unemployment rate peaks at 5% end-2026.

Energy situation

As previously highlighted, the key risk to our previous central case view (released on March 17) was that the Middle East conflict would prove to be more prolonged than assumed. With the conflict now entering its fifth week, it has become increasingly clear that the US/Israel–Iran confrontation is likely to result in a longer-lasting disruption to energy production in the Middle East and shipping through the Strait of Hormuz. We have therefore revised our baseline assumptions.

Specifically, we now assume the Strait of Hormuz remains effectively closed until the end of April, a total of eight weeks, and takes longer to reopen fully. This compares with our earlier assumption of a one-month disruption followed by a relatively rapid normalisation.

The slower recovery reflects several factors. Recent shipping traffic through the Strait has been limited to countries Iran deems friendly to it. Insurance premiums are expected to remain elevated given the risk of further attacks by regional factions. Shipping companies will also require time to re-establish vessel rotations and contractual delivery arrangements across energy and upstream industrial inputs.

As a result, we now assume traffic through the Strait reaches only around 20% of normal levels in May. Traffic is expected to continue to improve thereafter, although capacity is not expected to return to normal levels until end 2026.

The extension of the conflict and slower normalisation will lead to more ‘shut-ins’ (temporary stops in production due to storage capacity limits) among smaller Gulf producers. Coupled with some oil infrastructure damage, we now project this to see a shortfall in global oil production of around 6mb/d on average in Q2. This assumes Saudi Arabia and the UAE continue to divert exports via operational pipelines to partially bypass the Strait, with an available capacity at around 1.6–5.5 mbpd, alongside the release of IEA emergency stockpiles.

Risks around this path remain clearly skewed to the downside, particularly if there is more damage to port and energy infrastructure and/or shipping via the Red Sea is also impacted now that Yemen’s Houthi rebels have entered the conflict. This would represent a sharp escalation, but it could also see a faster resolution as it would bring more Gulf state countries into the fray against Iran.

Overall, the changes to our baseline assumptions imply a materially bigger and more persistent energy price shock than previously assumed.

Consequently, we now expect Brent crude oil prices to average around US$120/bbl in Q2, compared with US$90 previously. Prices are expected to remain elevated for longer, reflecting both ongoing physical disruptions and a sustained risk premium linked to security and insurance costs. Under our revised base case, oil prices ease only to around US$75/bbl in Q4, still US$13 above our pre conflict baseline, and do not converge back to pre conflict levels of around US$60/bbl until Q2 2027.

The impact on gas markets is even larger than for crude oil. LNG exports from the Middle East, particularly Qatar, have no viable alternative route that bypasses the Strait, leaving supply highly exposed to an extended disruption. Moreover, Qatar’s Ras Laffan LNG plant has suffered extensive damage halting production, with reports that it will potentially take up to five years to fully repair. As a result, Japanese LNG prices have surged above US$20mmbtu in recent weeks and are currently trading US$10 above pre-conflict levels. We forecast further increases as supply tightens to a quarterly average price of around US$26mmbtu over the next few quarters. Prices are projected to remain elevated even after oil markets begin to stabilise.

We have also made greater allowance for wider refinery margins than our previous forecasts. Disruptions to crude supply, combined with tight refined product inventories in Asia, have driven a sharp widening in the spread between Brent crude and Singapore Gas10, the key benchmark for Australian petrol and diesel prices. The spread has recently surged to around US$70/bbl, exceeding levels seen following Russia’s invasion of Ukraine. Given the importance of refined product availability and logistics, we expect margins to remain elevated even as the conflict eases, materially amplifying the pass through from higher crude prices to domestic fuel costs.

More acute pressures on supply chains

Given the prolonged closure, we now also assume supply chain pressures are more acute and persistent. Container freight rates have risen by 20% since the start of the conflict, reflecting longer shipping routes, higher fuel costs, insurance surcharges and booking constraints. While freight rates are still lower than the peaks in 2025 and significantly below the extraordinary peaks of 2021–22, Iran is reportedly extracting additional charges from non-hostile vessels negotiating passage through the Strait, further increasing transit costs even where shipping through the Strait is allowed.

The Middle East is also a key upstream supplier of industrial inputs, including fertilisers, chemicals, polymers and metals. Around 33% of global fertiliser trade, particularly urea and ammonia, transits the Strait. Disruptions are already pushing up prices for these inputs, with Egyptian urea prices, a global indicator for fertiliser prices, particularly nitrogen fertilisers, reaching its highest level in more than three years. That said, at around US$475/t, it is still significantly below its record of $1050 following Russia’s invasion of Ukraine.

Globally, manufacturing PMIs show a sharp re-acceleration in input cost growth, with energy, freight and intermediate goods cited as key drivers, alongside some lengthening in supplier delivery times. In Australia, the PMI manufacturing input price measure has risen to its highest level since August 2023.

However, while supply chain pressures are rising and are expected to remain elevated beyond the end of the conflict, they are expected to remain materially below the peak levels experienced in 2021–22. The port congestion, post-COVID reopening surge in demand and broad-based shortages that were features in this episode remain absent. The appreciation of the Australian dollar, both against the US dollar and on a trade weighted basis, will also provide a partial offset to imported cost pressures, reducing the local currency impact of higher global input prices. In contrast, the AUD/USD cross fell by 9% around during the 2022 episode, amplifying the rise in import costs.

Accordingly, while price pressures are rising, particularly for energy-intensive inputs such as fertilisers and aluminium, the impact on producer prices and the flow through to headline and core inflation is expected to be smaller than during the 2022 cost of living crisis.

Inflation impact

Both the Oxford Economics model and our bottom-up forecasts imply that higher energy, freight and upstream input costs are expected to lift headline inflation materially over 2026. The direct impact comes firstly through fuel and transport-related components before it broadens as higher distribution and input costs are passed on to a wider range of consumer prices.

Reacting to this, the Australian Government announced that from April 1, the fuel excise tax will be cut in half, reducing the pump price of petrol and diesel by 26¢/litre. We are now expecting headline CPI to peak at 5.4%yr in Q2 2026, up from 4.1% previously, with monthly inflation likely to be even higher breaking through 6%yr around April or May.

Key takeaways

• Downtrend intact despite policy support: AUD/USD failed to sustain gains after the hawkish RBA boost, reversing sharply from 0.7123 to a three-month low, with the bearish trend remaining intact below the 0.6910 resistance.
• Now driven by global risk sentiment: Rising stagflation fears and oil-driven macro stress have shifted AUD/USD into a “risk asset,” with stronger correlation to global equities—implying further downside if equity weakness persists.
• Key levels signal further downside risk: A break below 0.6838 may extend losses toward 0.6790–0.6710 (near the 200-day MA), while only a move above 0.6910 would invalidate the bearish outlook and trigger a rebound.

The price actions of the AUD/USD have staged the initial expected push up on 17 March 2025, ex-post RBA monetary policy meeting, where the Australian central bank offered a hawkish guidance of more interest rate hikes down the road in 2026 after it enacted a back-to-back rate hike of 25 basis points to increase the official cash rate to 4.1%.

The AUD/USD staged a rally of around 1% to print an intraday high of 0.7123 on 18 March 2026, which is within our predefined intermediate resistance zone of 0.7120/0.7140 highlighted in our previous analysis before it reversed by -4% to hit a three-month low of 0.6833 on Monday, 30 March 2026.

AUD/USD is now behaving like a “risk asset”

Fig. 1: Movement of iShares MSCI All Country World Index ETF with AUD/USD as of 31 Mar 2026 (Source: TradingView)

In the past two weeks, the stagflation risk narrative has gained traction due to higher oil prices, as global energy flow disruptions persist due to the US-Iran war, which shows no clear signs of de-escalation, damaging several Gulf states’ oil production and refinery assets.

Hence, the Australian dollar is now more sensitive to a significant deterioration in risk appetite triggered by heightened stagflation fear that overshadowed the “commodity currency” element.

Since mid-March 2026, the movement of the AUD/USD has been closely aligned with global equities.

The 20-day rolling correlation coefficient of the iShares MSCI All Country World Index (ACWI) ETF and AUD/USD has increased to 0.62 at this time of writing from 0.12 printed on 16 March 2026 (see Fig. 1).

Given that the ACWI ETF has just broken below its key 200-day moving average last week, which suggests more potential downside in the near to medium-term for global equities, in turn, it may trigger a further negative loop into the AUD/USD.

In today’s early Asian session, the Wall Street Journal has reported that US President Trump is willing to wind down the military campaign against Iran even if the Strait of Hormuz remains largely closed, signalling a potential shift in strategic priorities.

Overnight risk-off sentiment has stalled on this “conflicting” news flow, where the S&P 500 and Nasdaq 100 E-mini futures have erased earlier losses of around -0.5% at the opening hours of today’s Asian session to trade with an intraday of around 0.7% at this time of writing.

However, the AUD/USD remains muted and traded almost unchanged at the 0.6850 level.

Let’s now focus on the short-term trajectory (1 to 3 days) of the AUD/USD from a technical analysis perspective.

AUD/USD – More downside before potential bullish reversal at 200-day moving average

Fig. 2: AUD/USD minor trend as of 31 Mar 2026 (Source: TradingView)

Fig. 3: AUD/USD medium-term & major trends as of 31 Mar 2026 (Source: TradingView)

Watch the 0.6910 short-term pivotal resistance (former medium-term pivotal support) to maintain a bearish bias.

A break below 0.6838 is likely to trigger the continuation of the minor bearish impulsive down move sequence to expose the next intermediate supports at 0.6790/6760 and 0.6710 (close to the key 200-day moving average) before a potential bullish reversal occurs (see Fig. 2).

On the other hand, a clearance above 0.6910 invalidates the bearish scenario for a mean reversion rebound towards the next intermediate resistances at 0.6955 and 0.7000 (close to the intersection of the 20-day and 50-day moving averages).

Key elements to support the short-term bearish bias on AUD/USD

• The price actions of AUD/USD have continued to oscillate within its minor descending channel in place since 20 March 2026, with its lower boundary coming in at around 0.6710 (see Fig. 2).
• The daily RSI momentum indicator of AUD/USD has broken below its key ascending trendline support and has not reached its oversold region (below 30) (see Fig. 3).

Daily Pivots: (S1) 209.62; (P) 211.16; (R1) 212.13; More...

Intraday bias in GBP/JPY stays on the downside at this point. Corrective pattern from 214.98 should be in the third leg. Deeper decline would be seen to 209.15. Firm break there will target 207.20 and below. For now, risk will stay on the downside as long as 213.29 resistance holds, in case of recovery.

In the bigger picture, up trend from 123.94 (2020 low) is still in progress. Firm break of 214.98 will target 61.8% projection of 148.93 (2022 low) to 208.09 (2024 high) from 184.35 at 220.90. This will remain the favored case as long as 55 W EMA (now at 203.13) holds, even in case of another deep pullback.

Daily Pivots: (S1) 182.27; (P) 183.39; (R1) 184.20; More...

Risk remains on the downside for EUR/JPY with 185.64 resistance intact. Correction from 186.86 is probably in the third leg already. Break of 181.85 support will target 180.78 and below. Nevertheless, break of 184.64 resistance will invalidate this view, and bring retest of 186.86 high instead.

In the bigger picture, a medium term top could be in place at 186.86 and some more consolidations would be seen. Nevertheless, as long as 55 W EMA (now at 175.93) holds, the larger up trend from 114.42 (2020 low) remains intact. Firm break of 186.86 will pave the way to 78.6% projection of 124.37 (2022 low) to 175.41 (2025 high) from 154.77 at 194.88 next.

Daily Pivots: (S1) 0.8674; (P) 0.8687; (R1) 0.8706; More…

EUR/GBP's rebound from 0.8610 is still in progress. A short term bottom should be formed and intraday bias remains on the upside for 0.8788 resistance. For now, risk is mildly on the upside as long as 0.8610 support holds, in case of retreat.

In the bigger picture, current development revived the case that whole rise from 0.8221 (2024 low) has completed at 0.8863, after rejection by 61.8% retracement of 0.9267 (2022 high) to 0.8221 at 0.8867. Sustained trading below 38.2% retracement of 0.8821 to 0.8863 at 0.8618 will confirm this case, and bring deeper fall to 61.8% retracement at 0.8466 at least. For now, medium term outlook is neutral at best as long as 0.8863 resistance holds.

Daily Pivots: (S1) 1.6680; (P) 1.6746; (R1) 1.6793; More...

Intraday bias in EUR/AUD is turned neutral first with current retreat. On the upside, above 1.6803 will extend the rebound from 1.6125 to 38.2% retracement of 1.8554 to 1.6125 at 1.7053. However, break of 1.6561 minor support will argue that the rebound has completed, after rejection by 55 D EMA (now at 1.6754). Retest of 1.6125 low should be seen next.

In the bigger picture, fall from 1.8554 medium term top is seen as reversing the whole up trend from 1.4281 (2022 low). Deeper decline should be seen to 61.8% retracement of 1.4281 to 1.8554 at 1.5913, which is slightly below 1.5963 structural support. Decisive break there will pave the way back to 1.4281. For now, risk will stay on the downside as long as 55 W EMA (now at 1.7226) holds, even in case of strong rebound.

Daily Pivots: (S1) 0.9149; (P) 0.9176; (R1) 0.9192; More....

Intraday bias in EUR/CHF is turned neutral first with current retreat. On the upside, above 0.9198 will extend the rebound from 0.8979 short term bottom to 61.8% retracement of 0.9394 to 0.8979 at 0.9235. Sustained break there will pave the way to 0.9394 key resistance next. However, firm break of 0.9091 support will argue that the rebound has completed, and turn bias back to the downside for retesting 0.8979 low.

In the bigger picture, as long as 55 W EMA (now at 0.9286) holds, the larger down trend from 0.9928 (2024 high) is still expected to continue through 0.8979 at a later stage. However, sustained break of 55 W EMA should confirm medium term bottoming, and bring stronger rise through 0.9394 resistance, even as a corrective move.

Markets

The fog of war thickens as we’ve entered the US’s initial 4-to-6 weeks timeline to achieve its military goals in Iran. Only yesterday, US President Trump indicated that the US is in serious discussions with the (new) regime in Iran, but that it can still destroy Iranian energy infrastructure if the Strait of Hormuz isn’t immediately open for business. This morning, the WSJ reports that Trump told aides he’s willing to end the war without reopening the Strait of Hormuz as such operation could extend the total war timeline easily by another 4-to-6 weeks. Recall that the same WSJ yesterday headlined that a ground invasion to extract Iran’s uranium was under consideration. The FT focused on the possibility of seizing the strategic Khargh island (oil export hub). Add into the mix this weekend arrival of the USS Tripoli and the 31st Marine Expeditionary Unit, Houthi involvement (Red Sea is key trade choke point), continuous US/Israeli bombing and targeted Iranian retaliation (eg Kuwaiti oil tanker off Dubai overnight) and it remains anyone’s guess whether the Gulf War is about to escalate or de-escalate.

Brent crude trading at $113.5/b this morning is indicative to lack of confidence in an off-ramp. Key US equity indices (S&P & Nasdaq) eventually closed at new sell-off lows despite a slightly better start. Volatility on fixed income markets remains elevated with core bonds coming off the lows. Hawkish repositioning went far enough for now to navigate through the current fog. US Fed Chair Powell yesterday laid out the case for patience in case of the Federal Reserve. By pushing against the “emergency” rate hike case, he helped US Treasuries during their intraday rally. The US yield curve eventually bull steepened with yields ending 5.3 bps (30-yr) to 8.3 bps (2 to 7-yr) lower. Powell did warn for the impact on inflation expectations: “You can have a series of these supply shocks and that can lead the public generally—businesses, price setters, households—to start expecting higher inflation over time. Why wouldn’t they?” In FX space, the dollar gained for a fifty consecutive session. The trade-weighted greenback is bumping heavily against the 100.25/50 resistance area which is the neckline of a multiple bottom formation. A weekly close above this zone would be technically very relevant and strengthen the case for further USD-gains. EUR/USD keeps drifting lower, closing below 1.15 yesterday for only the third time this year and the sixth time since the start of H2 2025. Today’s eco calendar contains EMU CPI inflation, US Chicago PMI, consumer confidence and JOLTS job openings. Our in-house nowcast model sees headline inflation rising from 1.9% Y/Y to 2.5% Y/Y, slightly less than the consensus estimate (2.6%). We expect today’s numbers to be of limited importance as the market still navigates from the one Iran-related headline to the other.

News & Views

Inflation in Japan’s capital cooled to the slowest pace in almost two years in March. Consumer prices in Tokyo rose 1.4%, decelerating from an downwardly revised 1.5%. The gauge excluding fresh food ticked lower to 1.7% from 1.8%. Energy subsidies explained much of the easing with overall prices falling 7.5%. Gas prices, however, only dropped 1% compared to a whopping 14.7% decline in February in what are most likely spillover effects from the Iran war. The inflation measure excluding fresh food & energy costs still came in at an elevated 2.6% (from 2.7%). The currently higher oil and gas prices are expected to add further upward inflation pressure in coming months. Additional yen weakness adds fuel to the fire. USD/JPY in recent days soared to the 160 mark compared with 156 at the beginning of March. It prompted again strong verbal warnings from the Ministry of Finance yesterday. The Japanese currency today barely trades stronger around USD/JPY 159.6.

The British Retail Consortium warned UK consumers that price increases are inbound. Goods prices sold in the UK rose by just 1.2% in March, slightly higher than the 1.1% seen in February. But that relatively benign price evolution is to be upended in the short-term as energy costs surge and the broader supply chain disruption triggered by the conflict in the Middle East are working their way through. BRC said it will take at least three months before the effect passes through to consumer prices with retailers first working with suppliers to try to mitigate the impact on prices as far as possible. The BRC data were collected between March 1 and March 7. Brent oil since the cut-off date has risen another 20%+.

Daily Pivots: (S1) 0.6833; (P) 0.6854; (R1) 0.6875; More...

Intraday bias in AUD/USD remains on the downside at this point. Current fall from 0.7187 should target retracement of 0.5913 to 0.7187 at 0.6700. On the upside, above 0.6911 minor resistance will turn intraday bias neutral first. But risk will stay on the downside as long as 0.7187 resistance holds, in case of recovery.

In the bigger picture, as long as 0.6706 cluster support holds, rise from 0.5913 (2024 low) should still be in progress. Decisive break of 61.8% retracement of 0.8006 to 0.5913 at 0.7206 will solidify the case that it's already reversing the down trend from 0.8006 (2021 high). However, firm break of 0.6706 will dampen this bullish case, and bring deeper fall back to 0.6420 support, and possibly below.

Daily Pivots: (S1) 1.3890; (P) 1.3918; (R1) 1.3955; More...

Intraday bias in USD/CAD stays on the upside at this point. Current rally from 1.3480 is in progress for 38.2% retracement of 1.4791 to 1.3480 at 1.3981. Decisive break there will argue that it's already reversing the whole down trend from 1.4791, and target 61.8% retracement at 1.4290. On the downside, below 1.3879 minor support will turn intraday bias neutral first. But risk will stay on the upside as long as 1.3751 resistance turned support holds, in case of retreat.

In the bigger picture, price actions from 1.4791 are seen as a corrective pattern to the whole up trend from 1.2005 (2021 low). Deeper fall could be seen, as the pattern extends, to 61.8% retracement of 1.2005 to 1.4791 at 1.3069. However, break of 1.3927 resistance will argue that the correction has completed with three waves down to 1.3480 already. Further break of 1.4139 will confirm and bring retest of 1.4791 high.