Holiday calm masks inflation and trade risks

Asian - Pacific Markets

New Zealand’s inflation rose slightly more than expected in Q1, with annual CPI at 2.5%, up from 2.3% projected. This marks the first acceleration in nearly three years, but the increase remains within the RBNZ’s comfort zone. Underlying inflation pressures are easing, with trimmed mean and weighted median indicators softening. Markets remain firmly priced for a rate cut in May, reinforcing the central bank’s dovish bias.

Japan’s core consumer inflation picked up pace in March, reaching 3.2% year-over-year, in line with forecasts but signaling deepening challenges for the Bank of Japan. This marks the 36th consecutive month above the 2% inflation target, largely due to sustained food price pressures. With a policy meeting around the corner, the BOJ now faces a delicate balancing act: address persistent inflation or tread cautiously amid escalating global trade tensions.

Currencies

After a strong seven-day run, the Kiwi dollar paused its rally, weighed down by fears that deepening U.S.-China tensions could pressure New Zealand’s trade-sensitive economy. While fundamentals remain steady, sentiment has turned cautious.

The euro edged higher against the dollar, trading near 1.1370, amid fresh hopes for a resolution between Washington and Brussels. Still, with volumes lighter due to the holiday, sustained momentum may require stronger signals next week.

Commodities

Gold prices eased slightly as some investors locked in profits, though safe-haven interest could rise again if trade tensions persist. Meanwhile, WTI crude pushed to a two-week high near $63.50, buoyed by ongoing U.S. sanctions on Iran and optimism over potential U.S.-EU trade cooperation.

Market Outlook

U.S. President Donald Trump hinted at tempering tariff hikes, saying further increases might stifle demand. While the administration is holding firm on the steep 145% tariff on Chinese imports, the remarks suggest a growing awareness of domestic and market backlash since the early April announcement. Markets are parsing this shift carefully, especially as the broader economic repercussions of prolonged trade friction come into focus.

With most global exchanges closed for the long Easter weekend, immediate reactions to key economic data have been subdued. Attention is now turning to upcoming comments from Federal Reserve officials—particularly Mary Daly—for any recalibration in the central bank’s inflation-fighting stance. Traders are also eyeing the latest CFTC positioning data for clues on how institutional sentiment is shifting post-volatility.