US CPI Inflation Takes Centre Stage as Markets Eye Middle East Developments

Oil prices remained volatile but generally within the $80-85/bbl range as markets grappled with uncertainty over a potential Middle East deal. Despite toughened positions from both sides, Pakistan's defence minister hinted that the US and Iran are close to an arrangement regarding the Strait of Hormuz.

US President Trump suggested that Iran should pay reparations for those killed in attacks linked to Iran as well as domestic protests, while Iran presented a series of demands over the weekend, including compensation for US violations of an earlier agreement. However, markets remain buoyant despite the noise.

The focus later today will be on US CPI inflation, which is considered more important than labour market data in terms of the FOMC's mandate. The global team at mufgresearch.com expects some stabilization in core inflation at 0.17% mom, which could provide space for US yields to stabilize.

The Reserve Bank of Australia kept its policy rate at 4.35%, with RBA Governor Michele Bullock warning of persistent inflation risks and stating that future rate hikes remain on the table if inflation stays sticky. The AUD/USD initially dipped after the policy statement release but later rebounded when Bullock reiterated hawkish statements.

In Asia, India's CPI inflation is expected to inch higher towards 4.4% yoy from 4.3% yoy previously. RBI Governor Sanjay Malhotra said that inflation is 'more or less under check', reinforcing expectations that interest rates will stay on hold for now. However, the global team at mufgresearch.com still expects policy rates to head higher in India.