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[MARKET ANALYSIS] Greenback hit as crude slumps on US-Iran ceasefire, Kiwi outperforms amid RBNZ hike discussion

The recent US-Iran ceasefire is driving a risk-on sentiment in the FX markets, notably weakening the USD as Brent crude prices pull back.

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[MARKET ANALYSIS] Greenback hit as crude slumps on US-Iran ceasefire, Kiwi outperforms amid RBNZ hike discussion

[MARKET ANALYSIS] Energy slumps as US-Iran secure a temporary ceasefire ahead of deadline

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  • FX markets began the session firmly risk-on as the US and Iran agreed to a two-week ceasefire, clearing a path for the "re-open" of the Hormuz Strait. Unsurprisingly, the Buck has been knocked with DXY -0.7%, as it loses its favour as the preferred hedge against energy with Brent crude below the USD 100/bbl mark. In a note this morning, Jefferies set out three potential future scenarios: 1) a narrow diplomatic Off-Ramp, centred on reopening the Strait of Hormuz under a face-saving framework for Iran, 2) frozen conflict, where the ceasefire is extended or repeatedly renewed without a formal peace agreement, with oil trading below crisis peaks but above pre-war levels. 3) escalation resumes: triggering renewed disruption fears, pushing oil prices higher, and driving a sharp risk-off move in global markets.
  • NZD is the clear outperformer against the USD (NZD/USD +1.6%, AUDNZD -0.4%), helped by both the positive Middle East development and remarks in RBNZ's post-meeting presser, where Governor Breman said the MPC discussed the possibility of raising rates in April and May meetings, and the "Frequency of rate hikes could be every meeting or every second meeting" Despite the Kiwi's strength, AUD/USD has also been helped alongside risk sentiment and a rebound in precious metals (Gold +3%, Silver +7%, Copper +3%)
  • GBP is relieved by the slump in crude prices, with Cable +1% at the time of writing. Markets are still expecting c. 30bps of hiking for the BoE, a pullback of the same magnitude since Tuesday's close. The Cable rally stalled just above the 1.3440 mark, while the EUR cross faces resistance at the key 0.8700 level.
Context

With the NZD outperforming on discussions of potential RBNZ rate hikes, this geopolitical development is shifting market dynamics, favoring currencies tied to higher risk and commodity exposure, while creating volatility around energy prices and potential future scenarios for the region.

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