RBA Hike Looms Despite Softer CPI Data

• Australia’s March CPI was strong at the headline level, rising 1.1% in the month and 4.6% over the year, largely due to a 33% jump in fuel prices. Trimmed mean was slightly softer than expected at 0.8% for the quarter, although annual underlying inflation remains elevated at 3.5% and above the RBA’s target band.
• Australian rates moved lower after the release, as the underlying inflation result was not as firm as feared. That move was partly reversed overnight as higher oil prices and renewed Middle East tensions brought global inflation concerns back into focus.
• Markets see the possibility of the RBA moving higher in May, pricing implies a 75% chance of a 25bp hike in May, and a full hike by June, with 3-year and 10-year Australian yields finishing higher despite the initial CPI relief.
• The Fed left rates unchanged at Jerome Powell’s final meeting as Chair, but the decision came with a more divided tone than markets expected, including hawkish dissent against guidance that was seen as leaning too far toward future rate cuts.
• US yields rose after the meeting as investors focused less on the unchanged policy decision and more on the combination of firmer oil prices, Middle East risks, and a Fed that still cannot sound fully comfortable on inflation.