AUD: Inflation surprise puts Aussie $ in good position We have been calling for upside risks to the inflation picture in Australia, and are not surprised to see AUD rallying this morning after stronger-than-expected CPI figures. The 1Q print showed core measures of inflation staying above 4%, while the headline rate only decelerated to 3.6% year-on-year. The March CPI reading came in hotter than expected at 3.5% (cons. 3.4%). Australia’s two-year swap rate jumped by around 15bp after the release, and at 4.51% is at the highest since November 2023. The AUD OIS curve priced out a cut before year-end, with only 8bp of easing left for the December meeting. While the risks of another hike are not totally negligible, inflation figures were probably insufficient to warrant such a turnaround in policy. We think the Reserve Bank of Australia can achieve its inflation target without having to raise rates again, but may well need to digest some further bumps in inflation, which suggest further steps to the dovish side in communication will be taken with more caution. All these developments are positive for AUD, which has jumped back above 0.6500. While still vulnerable to risk-off turns, the Australian dollar is one of those currencies that can benefit from delayed policy easing expectations domestically and one of those in a stronger position to stay supported in a stable risk environment.