Commerzbank economists Dr. Henry Hao and Moses Lim note AUD/USD slipped to 0.6950 as Australia faces a stagflationary dilemma. Pre-war core inflation held at 3.3% while a Middle East energy shock could push prices higher. With confidence and services PMIs weakening, markets still price a 54% chance of a Reserve Bank of Australia rate hike in May.

RBA caught between inflation and growth

"AUD/USD fell 50 pips to 0.6950. The AUD's resilience is partly due to lingering hawkish bets as the Reserve Bank of Australia (RBA) confronts a severe stagflationary dilemma."

"While Australia's pre-war February core inflation was unchanged at 3.3%, the unfolding Middle East energy shock threatens to steepen the inflation trajectory in the coming months."

"On the other hand, consumer confidence already plunged to record lows while services PMIs flipped into contraction."

"The RBA will carefully weigh recession risks against the need to contain price spillovers from surging fuel costs, keeping markets pricing a 54% probability of a rate hike in May."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)