Market Outlook

The May 2026 Westpac Market Outlook highlights a persistent energy shock due to disrupted shipping in the Middle East, leading to higher oil prices and stickier inflation. The RBA has raised rates to 4.35%, with further hikes expected as the global economy faces stagflationary pressures.

Key Takeaways

• 1.The normalization of shipping traffic through the Strait of Hormuz will be more drawn out than previously assumed, extending the energy price shock into 2027.
• 2.The RBA raised the cash rate to 4.35% in May 2026, with Westpac forecasting two additional hikes in August and September.
• 3.Oil prices have been revised upwards, with Brent crude forecast at US$110/bbl for Q2 2026 and US$87/bbl for Q4 2026.

Table of Contents

• Australia
• Financial markets: Global markets navigate ongoing conflict
• Australian economy: Energy shock slows growth, lifts inflation
• The World
• Middle East: A slower normalisation in shipping flows
• Commodities: Oil prices remain bounded by headlines
• Global FX: FX markets waiting for clear air
• New Zealand: Early impacts of Iran war as expected
• China: Playing comparative advantage
• United States: Economic opportunity
• Japan: A coordinated policy response needed
• Europe & UK: Keep calm
• Summary forecast tables

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