US
Risk sentiment is holding firm despite renewed hostilities between the US and Iran. Both sides fired shots in the Strait of Hormuz, threatening the four-week-old ceasefire, while the UAE came come under attack from Iran. Brent crude oil prices pared back some of yesterday’s gains, global equity markets are mostly higher, and the dollar index (DXY) is consolidating just under its 200-day moving average (98.57).
Until the fog of war clears, energy prices will remain supported and currency performance will continue to largely reflect a country’s net energy balance (production minus consumption). That means NOK, CAD, AUD retain a relative edge mostly versus EUR and JPY. The US has a positive net energy balance, but interest rate differentials between the US and other major economies will keep the dollar index (DXY) anchored near the middle of its nearly one-year 96.00-100.00 range. Rate expectations have moved higher across G10 central banks since the war began on February 28.
The March JOLTS report is expected to remain consistent with the so-called “low-hire, low-fire” labor market backdrop (3:00pm London, 10:00am New York). Both the hiring and opening rates are drifting lower while the layoffs rate remains low.
The April ISM services index is seen supporting Fed rate hike expectations (3:00pm London, 10:00am New York). Consensus estimates the headline index at 53.7 vs. 54.0 in March and the prices sub-index at a 73.5 (highest since July 2022) vs. 70.7 in March.
AUSTRALIA
AUD fell against most major currencies. RBA raised rates as expected and signaled a data-dependent pause. Governor Michele Bullock stressed “One reason to increase interest rates was to give ourselves space now to sit and see what happens.”
The RBA voted 8-1 to deliver a third consecutive 25bps hike to 4.35%. Cash rate futures implied 80% odds of a hike today. According to the RBA “inflation is likely to remain above target for some time and that the risks remain tilted to the upside, including to inflation expectations.”
Indeed, the RBA projects its policy-relevant trimmed mean inflation to remain above the bank’s 2-3% range until mid-2027 (vs. end-2026 previously), as fuel-related cost increases are passed through to consumer prices.
Market participants expect the cash rate to increase by 35bps to 4.70% by the end of 2026. We see limited scope for a big upward adjustment in the cash rate futures curve for two reasons. First, the RBA slashed Australia’s growth outlook, now seeing real GDP growth running below potential throughout the forecast horizon. Second, the cash rate currently sits within, but near the top of, the range of model-based central estimates of the nominal neutral rate.
Bottom line: AUD/USD will struggle to sustain a break above key resistance at 0.7200. Still, Australia’s positive energy balance (production minus consumption) will continue to offer AUD a relative edge versus EUR and JPY.
SWITZERLAND
Switzerland April CPI was mixed. Headline CPI matched consensus at 0.6% y/y (highest since Q4 2024) vs. 0.3% in March due to higher energy prices. Headline inflation is largely in line with the Swiss National Bank’s (SNB) Q2 projection of 0.5%. Core CPI unexpectedly dipped to a multi-year low at 0.3% y/y (consensus: 0.5%) vs. 0.4% in March.
Benign underlying inflation leaves plenty of room for the SNB to look through the energy shock and keep rates steady for some time. As such, we would fade market pricing for a 25bps SNB hike to 0.25% by year-end. Regardless, CHF safe haven status more than outweighs the drag to the currency from a possible downward adjustment to SNB rate expectations.
