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Daily Pivots: (S1) 1.3632; (P) 1.3662; (R1) 1.3712; More...

Intraday bias in USD/CAD is turned neutral first with current recovery. Further decline is expected as long as 1.3713 resistance holds. Below 1.3596 will resume the decline from 1.3965 to retest 1.3480 low. Nevertheless, firm break of 1.3713 will turn bias to the upside for stronger rebound instead.

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, decisive break of 38.2% retracement of 1.4791 to 1.3480 at 1.3981 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.

We had two big headlines yesterday — neither Trump-related, hallelujah — and these were:

1. The WSJ reporting that OpenAI missed several monthly internal targets for new users and revenue, and
2. The UAE is leaving OPEC.

It was hard to choose which one to start with, but here we go — I'll start with the UAE news.

The UAE is leaving OPEC after six decades. They want to follow their own oil strategy, they don't want to be constrained by OPEC production quotas, they have had disputes about this before with Saudi Arabia, and they felt that the current Middle East disruption was the right moment to take the step.

What's important to know is that the UAE accounted for 12% of OPEC's total production and will surely have an impact on the punch power of OPEC globally. OPEC accounted for about 35–40% of global market share; without the UAE, this share would drop to roughly 31–36%. It means that OPEC's output restrictions would have a smaller impact on stabilizing global oil prices, and worse, the UAE's departure could encourage other producers to pursue their national interests independently — meaning maximizing production to maximize revenue in a context where smaller overall production can't provide enough support to oil prices to make the output-restriction strategy worthwhile. In short, higher competition and more supply will likely weigh on medium- to long-term oil prices once the Middle East dust settles and trade through the Strait of Hormuz is restored.

In the short run, however, given the massive disruption to oil flows through the Strait, the split will have little impact. The geopolitical tensions weigh much heavier. The oil market is undersupplied due to the near-complete halt of oil flows to global markets, and the UAE cannot bring barrels to market even if it wanted to. This is why oil prices rose yesterday. Both WTI and Brent crude traded past $105 per barrel, and longer-dated oil futures rose — though they rose less, hinting that the UAE news was indeed diluted by the highly tense geopolitical context.

Higher oil prices did not enthuse equity investors around the world, but the real hit to equity sentiment was the news that OpenAI missed internal targets on revenue and user growth, suggesting that revenue growth may not be enough to meet future — and lofty — computing contracts. In short, OpenAI may miss future payments if it cannot bring in enough money.

A startup missing targets could have been a minor issue for global financial markets, were it not sitting at the centre of a hundreds-of-billions-of-dollars AI ecosystem that includes the world's biggest and most richly valued names. I think of Nvidia — down around 1.60% yesterday — AMD down 3.40%, Oracle down more than 4%, and SoftBank down nearly 10%. Microsoft, on the other hand, rebounded 1% after having announced a day earlier that it is loosening its ties with the company.

The reason OpenAI missed its targets is likely the emergence of Google's Gemini and Anthropic's Claude models, which have come to challenge OpenAI especially in the lucrative coding business — they simply took a share of OpenAI's revenue. And indeed, since last October, Anthropic-related stocks have done notably better than OpenAI-related ones. The circles of course overlap, with some big companies sitting at the intersection of both, like Nvidia and AMD. But Google and Amazon, for example, have been strongly backing Anthropic, while Oracle and Microsoft were among the major names in the OpenAI circle.

So what's next? While the OpenAI news impacted Google and Amazon less than it did companies heavily betting on OpenAI — looking at you, SoftBank — the risk of slowing revenue growth due to intense competition could, and probably will, become a headache for other AI players as well, since scaling is costly and competition is extremely intense. This should have a limited impact on chip and computing demand overall, but companies must navigate revenue potential and risks more carefully — because if OpenAI misses a payment, there will be a domino effect down the line. That is the worst-case scenario for the AI rally and could have global implications.

In any case, futures are in positive territory this morning, suggesting the market has absorbed the OpenAI news and decided to look past it.

The Federal Reserve (Fed) will be in focus today, along with earnings from Google, Microsoft, Meta, and Qualcomm due after the bell. US Big Tech is expected to report around 40% revenue growth for last quarter — slowing, but still strong. Beyond that, 80% of S&P 500 companies have beaten revenue expectations so far.

Across the Atlantic, the picture is more mixed. Barclays fell short of its US rivals in Q1 results, while BP gained around 1% after confirming that Middle East-driven volatility contributed to profit. But appetite for European equities is waning due to rising energy costs and deteriorating growth prospects. Meanwhile, 12-month inflation expectations for the euro area spiked to 4% — a rise that could encourage workers to demand higher wages and companies to pass additional costs on to clients, potentially starting a fresh inflation spiral that could oblige the European Central Bank (ECB) to tighten policy by hiking rates. The ECB is expected to hold when it announces its latest policy decision tomorrow. A benchmark 10-year euro area government yield is nonetheless painting a worrying picture. The EURUSD, meanwhile, remains under pressure despite the hawkish implications for the ECB, as the broadly stronger US dollar is weighing on the pair amid persistent geopolitical tensions and rising oil prices.

In focus today

Tonight the FOMC is expected to keep its target rate unchanged within the current range of 3.5-3.75%. It is likely the last meeting with Jerome Powell as Fed chair, before Kevin Warsh is expected to replace him. For more details, read our Research US - Fed preview: In a waiting mode, 27 April.

We will receive German and Spain flash inflation numbers today, the most important releases ahead of the euro area print tomorrow. Furthermore, the EU Commission's business confidence indicator is released today where focus is on the selling price expectations. The forward-looking nature of the survey is important for the ECB.

In Sweden, we will receive preliminary GDP data and the NIER survey, which will provide crucial insights into the outcome for the first quarter. We expect 0% q/q growth and 2% y/y growth for the preliminary GDP figures. The quarterly NIER survey will also reveal firms' inflation expectations, which over time has proven to be one of the most reliable inflation indicators.

In the afternoon, the Bank of Canada is widely expected to keep its key policy rate unchanged at 2.25%, thus marking the fourth consecutive hold.

Overnight, China releases PMIs for April with both the private as well as official NBS data coming out. The numbers will give an indication of how the Chinese economy is coping with the war in the Middle East. As seen in the euro zone last week, manufacturing PMIs are expected to hold up at levels above 50 while the service sector could see a hit due to negative effects on transportation and a decline in tourism.

Economic and market news

What happened overnight

In Australia, the Reserve Bank of Australia's (RBA) preferred measure of core inflation, the trimmed mean measure, rose by 0.8% in Q1, slightly below market expectations and the 0.9% increase seen in Q4. RBA is expected to hike rates again next week, but it is not a done deal yet with around 70% probability priced in.

What happened yesterday

In oil markets, prices continued to climb slightly yesterday, with Brent crude rising to USD 111/bbl, returning to pre-ceasefire levels. Expectations for a swift reopening of the Strait of Hormuz have diminished significantly, with investors on Polymarket now assigning roughly a 40% probability of oil flows normalising before the end of May, down sharply from 70% immediately after the ceasefire. Markets are likely to remain sceptical about progress in US-Iran talks and may only react decisively once ships begin to cross the strait again.

Furthermore, the UAE's decision to leave OPEC and OPEC+ from 1 May marks a notable shift in the oil market. While the move allows the UAE to produce at full capacity independently, the news did not affect oil pricing due to the continued closing of the Strait of Hormuz. Reuters reports that the UAE, which accounted for 3% of global crude supply with a production of 3.4 million bbl/day before the Iran war, could ramp up output to its full capacity of 5 million bbl/day once shipping resumes. As OPEC's fourth-largest producer, the UAE's departure reduces the group's control over global oil production from 50% to approximately 45%. While Iraq has confirmed its commitment to OPEC+, the UAE's exit raises questions about the organisation's cohesion and signals a potential regime shift in the oil market. While such a shift could potentially drive a substantial drop in oil prices, this is contingent on the reopening of the Strait of Hormuz.

In the euro area, the ECB's Consumer Expectations Survey for March revealed sharply higher inflation expectations, with median 1Y CPI expectations jumping to 4.0% from 2.5%, and 3Y expectations rising to 3.0% from 2.5%. The monthly increase in 1Y expectations is nearly as large as the surge seen in March 2022, signalling a hawkish shift. Particularly medium-term expectations climbed, which prompted an upwards push on the EUR rates. Meanwhile, the ECB's quarterly bank lending survey showed banks tightening credit standards across all loan categories in Q1, driven by higher perceived risks. Further tightening is expected in Q2, which could help cool the euro area economy ahead of anticipated ECB rate hikes this summer.

In Japan, following the BoJ's decision to keep rates unchanged, Governor Ueda avoided firm guidance on the timing of a rate hike but kept the door open for potential action at the June meeting. Market pricing of hikes remained steady, with 17bp worth of hikes priced in by June and 50bp total rate hikes in 2026. We continue to expect a rate hike at the June meeting.

In the US, the April Conference Board consumer confidence index improved for the third consecutive month, in contrast to the less optimistic University of Michigan survey. In any case, overall confidence remains weak compared to pre-pandemic levels, and inflation expectations stay modestly elevated. ADP also released their weekly private sector jobs growth estimate, which showed that employment grew by 39k per week on average over the four weeks ending April 12, which is roughly consistent with the reference period for the upcoming April NFP. While the correlation to BLS's Jobs Report is far from perfect, ADP's weekly estimates have signalled improving sequential jobs growth into April.

In Hungary, the central bank (MNB) left its benchmark rate unchanged at 6.25% yesterday, in line with both our expectations and market consensus.

Equities: Equities moved lower yesterday, with most regions in the red and the sector rotation tilting more defensive. What is worth noting, however, is that tech led the decline while the VIX actually fell. In other words, this was not primarily a classic negative macro-data sell-off. It was at least as much about renewed concerns around the AI space, triggered by OpenAI warning on revenue developments. That naturally brought one of the key underlying concerns in the AI narrative back to the surface: monetisation. But investors should be careful not to extrapolate too aggressively. What we have heard from OpenAI does not match what we have heard from Anthropic. Put differently, this may be less a story about broad-based AI demand disappointment and more about a meaningful shift in users from ChatGPT towards Claude.

Asian equities are mixed this morning, with Chinese equities stronger in Hong Kong. European and US futures are marginally higher.

FI and FX: EUR/USD continues to trade near 1.17 ahead of tonight's FOMC meeting where no change to the policy rate and no firm forward guidance is expected. The following press conference should be the last one for J. Powell as a Fed Chair. The BoC is to leave its policy rate unchanged at 2.25%, too, while focus will be on the quarterly MPR. The UAE's decision to leave OPEC might be a bearish trigger for oil prices once the SOH reopens, for now however oil remains at elevated levels with the June Brent Crude at USD111.2. In Sweden we will get important data from the NIER survey and the GDP Indicator for Q1. The Norwegian retail sales numbers are likely less of a mover of the NOK than potential surprises from the FOMC.

Daily Pivots: (S1) 0.7157; (P) 0.7176; (R1) 0.7202; More...

AUD/USD dips mildly today but stays in established range below 0.7221. Intraday bias remains neutral and more sideway trading could be seen. Further rise is expected as long as 0.7076 support holds. On the upside, firm break of 0.7221 will extend larger up trend to 61.8% projection of 0.6420 to 0.7187 from 0.6832 at 0.7306. On the downside, break of 0.7076 minor support will turn bias back to the downside for deeper pullback.

In the bigger picture, rise from 0.5913 (2024 low) is still 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). Further rally should then be seen to retest 0.8006. For now, outlook will remain bullish as long as 0.6832 support holds, in case of pullback.

Despite the renewed surge in oil prices, there has been little shift in overall sentiment. Brent’s move higher would typically trigger a broader risk-off reaction, yet price action across asset classes remains contained. The lack of urgency suggests that traders are unwilling to commit ahead of today’s FOMC decision.

The Federal Reserve is widely expected to leave rates unchanged at 3.50–3.75%, but the real focus is on tone rather than action. This meeting is likely Jerome Powell’s final one as Chair, and expectations are firmly anchored around a “steady as she goes” message rather than any attempt to reshape the policy outlook.

There are also structural reasons why the meeting may deliver little. As an interim gathering without updated economic projections, it offers limited scope for meaningful guidance changes. Any adjustment to the Fed’s outlook is more likely to be deferred to June, when new forecasts are released. This reinforces the view that today’s meeting could turn out to be a non-event.

At the same time, the macro backdrop is becoming more complex. Oil prices have surged as the US–Iran conflict drags on, but the situation remains a stalemate rather than a breakdown. Markets are not yet pricing a return to full-scale conflict, which explains why the move in oil has not translated into broader panic.

This leaves markets in a delicate balance. On one hand, elevated oil prices are feeding into inflation concerns and supporting safe haven demand. On the other, the absence of escalation is preventing a more aggressive repricing of risk. As a result, traders are holding positions light and waiting for clearer signals.

In FX markets, Australian Dollar continues to stand out as the strongest performer for the week so far. The Q1 inflation report reinforced expectations for an RBA rate hike in May, effectively locking in near-term tightening. However, the softer-than-expected details have introduced uncertainty over the path beyond that move.

This nuance matters. While headline inflation surged, underlying pressures were more contained, suggesting that the RBA may not need to accelerate tightening after May. That has led to some pullback in Aussie, even as it retains a relative yield advantage.

Dollar is currently the second strongest currency, supported by the combination of higher oil prices and modest safe haven flows. However, without a clear escalation in geopolitics or a hawkish shift from the Fed, the move lacks strong momentum.

Canadian Dollar is also benefiting from the oil rally, but the domestic policy outlook is far more cautious. The Bank of Canada is widely expected to hold rates steady today, and many economists see little need for further tightening given ongoing weakness in parts of the economy.

Governor Tiff Macklem has already downplayed the significance of recent inflation expectations, viewing them as largely transitory as driven by external shocks. The focus remains on supporting growth, suggesting that policy will remain on hold even as oil prices rise.

At the other end of the spectrum, Swiss Franc is underperforming despite elevated geopolitical risks. Traditionally, CHF would attract inflows during periods of uncertainty, but this time the dominant driver is interest rate differentials rather than risk sentiment.

With oil prices rising, markets are increasingly expecting other central banks—particularly the ECB and BoE—to maintain or even strengthen their tightening bias to counter inflation pressures. By contrast, the Swiss National Bank is expected to stay on hold, with its primary concern still centered on preventing excessive Franc strength that could trigger deflationary forces.

Kiwi and Sterling are also underperforming, while Euro and Yen are trading in the middle of the pack.

Fed–Market Disconnect Takes Center Stage as Powell’s Final FOMC Faces Oil-Driven Inflation Test

The Fed sees inflation as temporary—but markets are not convinced. As oil prices surge again, Powell’s final FOMC faces a critical test between sticking to the script or signaling a policy shift. Read More.

Australia CPI Jumps to 4.6% as Fuel Surge Drives Headline Higher, Core Inflation Steady

Headline inflation is rising again in Australia, but stable core and easing services inflation suggest the shock remains concentrated rather than broad-based. Read More.

RBNZ's Breman: Ready to Act Decisively If Inflation Persists

RBNZ's Breman said if inflation persists, action will follow decisively. With fuel driving prices higher and core inflation still contained, policymakers are staying cautious but ready to tighten. Read More.

AUD/USD Daily Report

Daily Pivots: (S1) 0.7157; (P) 0.7176; (R1) 0.7202; More...

AUD/USD dips mildly today but stays in established range below 0.7221. Intraday bias remains neutral and more sideway trading could be seen. Further rise is expected as long as 0.7076 support holds. On the upside, firm break of 0.7221 will extend larger up trend to 61.8% projection of 0.6420 to 0.7187 from 0.6832 at 0.7306. On the downside, break of 0.7076 minor support will turn bias back to the downside for deeper pullback.

In the bigger picture, rise from 0.5913 (2024 low) is still 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). Further rally should then be seen to retest 0.8006. For now, outlook will remain bullish as long as 0.6832 support holds, in case of pullback.

Today’s FOMC decision is expected to leave rates unchanged at 3.50–3.75%, yet the real story lies in the widening gap between what the Fed is signaling and what markets are pricing. That tension is now being tested by a renewed surge in oil prices, as geopolitical risks refuse to fade.

This meeting carries added weight as it is likely Jerome Powell’s final one as Chair before his term ends on May 15. Rather than setting a new direction, Powell is likely to maintain a neutral, flexible stance, effectively handing policy discretion to incoming Chair Kevin Warsh. That raises the risk that the meeting itself becomes a non-event rather than a turning point.

But the backdrop is shifting. With Brent crude breaking above $110 again, the argument that inflation is purely transitory is becoming harder to sustain. The longer the Iran conflict drags on, the greater the risk that energy-driven price pressures become embedded in the broader inflation outlook.

This is where the disconnect becomes most evident. The Fed’s March projections still point to one rate cut this year, a view supported by most economists. Markets, however, are moving in the opposite direction. Fed funds futures now imply nearly an 80% probability that rates will remain unchanged at current levels through year-end, with the odds of a cut declining further as oil prices push higher.

This reflects growing skepticism toward the Fed’s “transitory” narrative. While policymakers expect energy-driven inflation to fade once geopolitical tensions ease, traders are increasingly betting that persistent price pressures will force the Fed to revise its outlook, potentially reducing or eliminating projected cuts.

The key question is whether this meeting marks the start of that shift. Powell may choose to stick to the existing framework, emphasizing that inflation pressures are temporary and data-dependent. Such a stance could be interpreted as dovish, reinforcing expectations that policy easing remains on the table and weighing on the Dollar.

Alternatively, a subtle shift in tone—acknowledging that geopolitical energy shocks may be more persistent—could have outsized market impact. Even a modest adjustment could prompt markets to further price out rate cuts, supporting yields and lifting the Dollar.

For traders, EUR/USD is a key focus. As long as 1.1662 holds, the rebound from 1.1408 remains intact, with a break of 1.1848 resistance opening the way toward 1.2081.However, firm break of 1.1662 will suggest that the rebound from 1.1408 has completed as a corrective move. That would firstly bring retest of 1.1408 low.

We reaffirm our view that the RBA will raise the cash rate 25bps to 4.35% next week.

We reaffirm our expectation that the RBA Monetary Policy Board (MPB) will raise the cash rate a further 25bps at its May meeting, to 4.35%. Inflation was higher than the MPB was comfortable with prior to the Middle East conflict, spurring it to lift the cash rate in both February and March. The RBA doubled down on its views that the economy was tighter than full employment and needed to be restrained to get inflation back under control.

Those rate hikes were based on data relating to the period before the war. While petrol prices have since reversed much of the 32.8% increase recorded in March, part of this was driven by the cut to excise, due to expire in a few months. Diesel prices – and thus freight costs – remain very elevated. The RBA could look through higher fuel prices if that was all that was happening, but it is not. Pass-through to other (non-fuel) prices is clearly starting, touching everything from building products to takeaway food if the reports we are receiving are any guide. The RBA will be hearing similar stories from firms in its liaison program.

March would have been very early days for much pass-through to be evident in the CPI. For example, many of the price increases for building products we are aware of did not take effect until 1 April. Today’s CPI data nonetheless show scattered signs of pass-through to other prices. There were some promising signs in softer monthly prices of appliances and some other household goods. However, home-building and vehicle repair costs, along with downstream insurance inflation, all picked up in the month and quarter. Services related to AV, computing and telecommunications also increased in the month, which for telecommunications went against the run of recent months’ results.

This is occurring in the context of a starting point where non-tradables and services inflation are already too high. At 0.8%qtr, the RBA’s preferred quarterly trimmed mean measure of inflation is still too high for the RBA to walk past, even though it was a touch lower than our pre-release expectation, consistent with the downside risks we flagged.

Together with the spike in both consumer inflation expectations and business survey measures of costs and prices, the March inflation data will have the RBA’s inflation warning lights flashing bright red. The MPB will see an imperative to address high inflation despite the caution expressed by the minority voters in March.

Some observers point to the demand-destruction higher fuel prices can unleash via the hit to real incomes, which will dampen inflation on its own eventually. This is plausible, but it will take too long to assuage an RBA facing an extended period of above-target inflation.

Indeed, based on its communication so far, especially the March minutes, the MPB puts little weight on that argument. The minutes characterised the supply shock as ‘further exacerbating existing capacity pressures’, and the future demand destruction as just a possibility. This view flows from the RBA’s analysis that the economy is already too tight, as inferred from inflation already being above target. It is also taking signal from the income boost from higher LNG prices, but no disinflationary signal from exchange rate appreciation beyond what is already implied by the RBA’s own actions on rates.

We also consider significant what the RBA has not communicated in recent weeks. When markets began pricing in multiple policy rate hikes by the ECB, Bank of England and Bank of Canada, senior officials at those central banks pushed back. Indeed, BoE Governor Bailey stated in an interview with Reuters that “markets had gotten ahead of themselves”. ECB President Lagarde used a speech on 25 March to highlight that the current shock was likely to be less inflationary than the energy shock in 2022 when Russia invaded Ukraine at a time that other supply chains were still recovering from pandemic disruption. The RBA has not pushed back in the same way. In addition to the higher starting point for inflation here, part of the reason seems to be that Australia is already seeing the pass-through to other prices that other central banks are still at the stage of watching for.

All this adds up to the MPB wanting to tighten policy further. The refreshed forecast in the Statement on Monetary Policy will allow the RBA to set out its views of the inflation impulse from the war, making May a good opportunity to take, and explain, the next step.

The outlook for the cash rate beyond May is necessarily less certain. We hold to our base case that there will be two further rate hikes after May, in June and August. The RBA’s experience last year, when underlying inflation popped back up almost immediately after it cut rates, will have nudged some within the RBA to the idea that the cash rate needs to be higher than its previous peak to really get inflation under control (for the technically-minded, their individual estimates of the neutral rate got revised up). While outwardly the RBA continues to characterise its strategy as being willing to be a bit less activist to hold onto the post-pandemic employment gains, most of the original architects of that strategy have left the building and those inclined to be more activist will have more influence.

There is a chance that the RBA ends up doing less than our base case, if the voices on the MPB that counselled caution in March can sway other members, or if pass-through to non-fuel prices turns out to be less than current information suggests. However, we put less weight on this scenario given the starting point for domestically driven inflation.

Key Highlights

• WTI Crude Oil started a recovery wave above $96.50 and $98.00.
• A bullish trend line is forming with support at $99.80 on the 4-hour chart of XTI/USD.
• Gold is grinding lower below the $4,650 support zone.
• EUR/USD seems to be struggling to regain traction for a move above 1.1740.

WTI Crude Oil Price Technical Analysis

WTI Crude Oil prices found support near $88.00 against the US Dollar. The price started a steady recovery wave above the $90.00 and $92.50 levels.

Looking at the 4-hour chart of XTI/USD, the price settled above $85, the 100 simple moving average (red, 4-hour), and the 200 simple moving average (green, 4-hour). The price cleared the 50% Fib retracement level of the downward move from the $117.73 swing high to the $81.94 low.

On the upside, immediate resistance is near the $103.50 level. The first key hurdle for the bulls could be $104.00 and the 61.8% Fib retracement level of the downward move from the $117.73 swing high to the $81.94 low.

A close above $104.00 might send Oil prices toward $110.00. Any more gains might call for a test of $115.00 in the near term. On the downside, the first major support sits near the $99.50 zone. The next support could be $96.00, below which the price could dive and test $92.00.

A daily close below $92.00 could open the doors for a larger decline. In the stated case, the bears might aim for a drop toward $85.00.

Looking at Gold, there was a bearish reaction below the $4,680 and $4,650 support levels. The next major bid zone could be $4,500.

Economic Releases to Watch Today

• US Durable Goods Orders for March 2026 – Forecast +0.5% versus -1.3% previous.
• Fed Interest Rate Decision - Forecast 3.75%, versus 3.75% previous.

RBNZ Governor Anna Breman warned at a panel discussion today that New Zealand is being affected by global inflation shocks stemming from the Middle East conflict, noting that it has “disrupted global supply chains, pushing up prices for oil, fertilizers, and other goods facing shortages.” As a small open economy, she said, New Zealand “cannot avoid being buffeted by these global forces,” with impacts likely to vary across sectors, regions, and households.

Despite the pickup in inflation, Breman view the pressure as largely temporary. Annual CPI rose to 3.1% in Q1 2026, above the 1–3% target range, but Breman said that “much of the increase was driven by fuel prices,” while core inflation measures “have remained stable within the target band.”

Nevertheless, she stressed that monetary policy “can and should ensure that a temporary increase in inflation does not turn into enduring inflationary pressures,” with a focus on returning inflation to 2% over the medium term.

Breman added the decision to hold the OCR at 2.25% earlier this month weighed the benefits of acting pre-emptively against “the cost of unnecessarily stifling the economic recovery.” However, she reaffirmed that the RBNZ “remains ready to act decisively and in a timely manner” if signs emerge that short-term inflation is feeding into more persistent pressures, while continuing to monitor developments in the Middle East and incoming data.

Australia’s inflation accelerated sharply in March, with headline CPI rising from 3.7% yoy to 4.6% yoy, the highest since September 2023, though slightly below expectations of 4.8% yoy. The surge was largely driven by energy costs.

The breakdown shows a clear divergence between goods and services. Goods inflation jumped from 3.5% yoy to 5.5% yoy, led by automotive fuel, which surged 24.2% yoy. By contrast, services inflation eased from 3.9% yoy to 3.6% yoy, pointing to softer underlying domestic price pressures.

On a monthly basis, CPI rose 1.1% mom, with transport costs up 9.2% as automotive fuel prices spiked 32.8%—the largest monthly increase since the series began in 2017.

Core inflation remains contained, with trimmed mean CPI unchanged at 3.3% yoy in both March and the first quarter. This suggests that while headline inflation is being pushed higher by external cost shocks, underlying inflation dynamics have yet to re-accelerate.

Full Australia CPI release here.