Summary:

• Japanese markets were closed for Showa Day, thinning regional liquidity and removing cash UST trading from the session
• Trump has instructed aides to prepare for an extended, indefinite blockade of Iran following Situation Room discussions, with the president viewing renewed bombing or disengagement as higher-risk options
• A senior US official said the blockade is straining Iran’s ability to store unsold oil and prompting fresh outreach to Washington; Iran said two days ago it will never discuss its nuclear programme under current conditions
• Oil traded higher on the blockade news before retracing, with moves remaining relatively contained
• The US dollar gained modest ground on the session
• Australian Q1 CPI surged on energy costs driven by the Middle East conflict, but the trimmed mean core measure came in below forecasts, tempering rate hike expectations. Swaps now price an ~75% probability of an RBA hike at the 5 May meeting, down from 85% before the inflation print
• The Australian and New Zealand dollars both lost ground

Japan’s Showa Day public holiday removed a significant source of regional participation from Wednesday’s Asia Pacific session, with the absence of Tokyo leaving liquidity thinner than usual across currency and rates markets and shutting down cash US Treasury trading for the duration.

The dominant macro theme remained the Iran conflict and its implications for energy markets and monetary policy. The Wall Street Journal reported that President Trump has instructed aides to prepare for an extended, indefinite blockade of Iranian ports following a Monday Situation Room meeting. Trump assessed that resuming the bombing campaign or walking away from the conflict entirely both carried greater risk than maintaining the economic squeeze. A senior US official said the measures are visibly biting, with Iran struggling to store unsold oil and making renewed overtures to Washington. The White House framed the blockade as a lever to force Iranian capitulation on the nuclear issue. Iran, for its part, said two days ago it would not discuss its nuclear programme under the current conditions, leaving the diplomatic picture firmly deadlocked.

Oil markets reacted to the blockade news with modest gains before retracing, with price moves remaining orderly rather than dramatic. The US dollar edged higher on the session.

In Australia, first quarter consumer price data delivered a mixed picture. Headline inflation surged as Middle East-driven energy costs fed through into fuel prices, but the trimmed mean core measure, which strips out the most volatile components including petrol, came in high but more subdued. Headline and core are well above the 2-3% RBA target range. Analysts noted that petrol prices have retreated in recent weeks toward pre-conflict levels. Rate markets moved to reflect the softer core reading, with swaps pricing a 75% probability of a May hike, down from 851% immediately before the data. The Australian and New Zealand dollars both weakened on the session.