The week saw significant market volatility as the US Consumer Price Index (CPI) for April came in at 3.8% year-over-year, surpassing the 3.7% forecast and marking the highest reading since May 2023 [1][4]. The core CPI also rose to 2.8% year-over-year, above the 2.7% estimate [4]. This hotter-than-expected inflation print prompted major financial institutions such as Goldman Sachs and Bank of America to revise their Federal Reserve rate expectations, with the CME FedWatch tool showing the probability of a Fed rate hike this year increasing to 33.4% from 23.5% prior to the CPI release [1][4].
Despite these inflationary pressures and rising geopolitical risks—particularly the ongoing Iran conflict and failed US-Iran negotiations—US equities showed resilience. The S&P 500 closed at a record high of 7,412.84 early in the week, and after the CPI release, dipped only 0.16% to 7,400.96, indicating that much of the negative news had already been priced in by investors [1]. The equity rally was attributed to earlier hopes of geopolitical relief, but as those hopes faded, the pullback remained shallow due to hedged positioning [1].
In commodities, West Texas Intermediate (WTI) crude oil surged over 4% to settle at $102.18 on Tuesday, driven by fears of a prolonged closure of the Strait of Hormuz after US-Iran talks stalled [1][4]. However, WTI corrected down 1.5% to near $97.20 in Asian trading on Wednesday as concerns over the demand outlook resurfaced following the hot US inflation data [4]. US President Donald Trump labeled Iran's counterproposal as "totally unacceptable" and expressed confidence that the US could resolve the situation with or without China's involvement [3][4].
Currency markets reflected the global risk sentiment. The New Zealand Dollar (NZD/USD) extended losses to around 0.5940, pressured by rising RBNZ inflation expectations (two-year at 2.53% for Q2 2026, one-year at 3.41%) and high oil prices [3]. Markets have fully priced in a rate hike by the Reserve Bank of New Zealand for July, though Governor Anna Breman noted that core inflation remained within target in Q1, leading investors to scale back expectations for a May hike [3]. Meanwhile, the AUD/JPY cross held steady near 114.10, supported by a bullish technical structure and expectations that the Reserve Bank of Australia would remain on hold, though further domestic fiscal support could increase the likelihood of additional tightening [2]. Fears of Japanese currency intervention and close coordination between Japanese and US authorities were also noted as factors capping the upside for the Yen [2].
Looking ahead, markets are focused on the upcoming meeting between US President Donald Trump and Chinese President Xi Jinping in Beijing, with any positive developments expected to impact risk sentiment and the China-proxy Australian Dollar [2][4]. New Zealand's Prime Minister Christopher Luxon reaffirmed a commitment to achieving a budget surplus by 2028–29 and reducing national debt toward 40% of GDP ahead of the May 28 Budget [3].
CONCLUSION
Markets responded to hotter-than-expected US inflation and persistent geopolitical tensions with a mix of resilience and caution. While equities showed only a modest pullback and oil prices corrected after a sharp rally, expectations for central bank tightening increased. Forward-looking attention is on US-China talks and further central bank actions, with risk sentiment remaining highly sensitive to geopolitical and inflation developments.