NZ dollar slides as Iran conflict drags on; oil back above US$100/bbl
Prediction markets have cooled on an April ceasefire.
The New Zealand dollar dropped near a two-month low as the conflict in Iran escalated through the weekend, with US President Donald Trump calling on allies to help reopen the Strait of Hormuz as rising oil prices threaten to revive broader inflation.
The Reserve Bank of Australia will be one of the world’s first central banks to grapple with the energy shock, with bond traders pricing in a 68% chance of a rate hike at its Tuesday meeting, ahead of reviews by the Federal Reserve, European Central Bank and Bank of England, all of which are expected to stay on hold.
Australian futures are pointing to a soft start to the week for the ASX when trading opens across the Tasman after a soft lead from Wall Street and as odds in Polymarket prediction markets have grown longer for a ceasefire in April.
Meanwhile, New Zealand’s finance minister Nicola Willis met with the heads of the Reserve Bank and the Treasury over the weekend to discuss worst-case scenarios, with inflation the immediate worry for Wellington’s policymakers.
Growing unease
Brent crude oil futures rose 0.7% to US$103.89 a barrel at 7am in Auckland the conflict in the Middle East continues to weigh on global markets, with US strikes on oil export hub Kharg Island over the weekend and President Trump calling on allies to help reopen the Strait of Hormuz.
European foreign ministers will discuss potentially widening naval operations in the region at a meeting on Monday, while the UK is actively looking at how to reopen the strait.
Trump said Iran is ready to end the war, but that the terms aren’t good enough for him yet, although Iranian foreign minister Abbas Araghchi told CBS’s ‘Face the Nation’ programme that the Islamic Republic hasn’t asked for talks.
Polymarket prediction markets are pricing in a 35% chance of a ceasefire by the end of April.
“Elevated oil prices remain in focus as geopolitical tensions escalated, with Iran stepping up attacks in the Strait of Hormuz and the US moving to bolster its military presence in the region,” Bank of New Zealand senior interest rate strategist Stuart Ritson said in a note. “Risk sentiment remained fragile, with global equities closing lower and credit spreads continuing to widen.”
The cooler risk sentiment weighed on the kiwi dollar, which dropped to 57.74 US cents at 7am in Auckland from 58.45 cents last week.
Inflation fears
The weaker currency will add another inflationary impulse – albeit one the Reserve Bank often looks through – as energy prices drive up costs more broadly. Finance minister Nicola Willis told TVNZ’s ‘Q&A’ programme that inflation is the immediate concern. She met with Reserve Bank governor Anna Breman and Treasury secretary Iain Rennie over the weekend to discuss the crisis, which is expected to sap growth in the slow economic recovery.
Local data today include the BNZ-BusinessNZ performance of services index, following robust activity in its sister manufacturing survey on Friday, and Statistics New Zealand’s February electronic card spending. December quarter gross domestic product figures later this week are expected to show a softer starting point for the economy before the Middle East conflict erupted.
Meanwhile, central banks will start responding to the energy shock, with the RBA meeting on Tuesday and traders are betting on a hike, with 17 basis points priced in. The Fed, ECB and BoE will meet later this week.
Stocks on Wall Street and in Europe were broadly weaker on Friday, setting a soft lead for the antipodes when markets open today, with futures pointing to a 0.7% decline for the S&P/ASX 200 index.
New Zealand’s S&P/NZX 50 index fell 2.5% last week in its sharpest weekly decline since September, a fraction smaller than the 2.6% fall for the ASX200.
Retailer KMD Brands will be in view after the Australian Financial Review’s Street Talk column reported the firm has hired Goldman Sachs to manage a major recapitalisation.
Broadband network operator Chorus is going ex-dividend today.
Reporting by Paul McBeth. Image from Enguerrand Photography on Unsplash.
