Australia, NZ dollars retreat from multi-week peaks on peace deal doubts

SYDNEY: The Australian and New Zealand dollars retreated from recent peaks on Monday as doubts about a Middle East peace deal eroded demand for the risk-sensitive currencies.

The Aussie fell as low as $0.7115 before trimming losses to be down 0.2% at $0.7150.

The currency scaled a four-year peak of $0.7222 on Friday with stocks galloping to record highs as Iran reopened the crucial Strait of Hormuz, through which a fifth of global energy supply typically passes.

However, Tehran again closed the waterway over the weekend after the US seized an Iranian cargo ship, raising doubts over whether the current ceasefire will hold until its expiry on Tuesday.

Tehran said it would not participate in a second round of peace negotiations.

Still, the recent outperformance of the Aussie dollar spurred analysts at Commonwealth Bank of Australia to temper their bearish view on the currency, now forecasting it to fall to 69 cents by the end of June, instead of 67 cents previously.

“AUD/USD will receive a short-term bump up once the war’s end is in sight. But a weaker global growth outlook and US exceptionalism will still pull AUD/USD down over the next year,” said Kristina Clifton, senior currency strategist at CBA.

The Australian calendar is light this week, so the Aussie’s movements are likely to be dictated by headlines from the Middle East.

The kiwi dollar was similarly down at $0.5849 before paring losses to be off 0.1% at $0.5875.

The five-week top of $0.5929 from Friday is acting as near-term resistance, while support is around $0.5870.

Traders will be watching for New Zealand’s first-quarter inflation data on Tuesday, after the central bank warned of decisive action if price pressures ramp up due to the war.

Forecasts are centred on a 0.8% rise in headline inflation, slowing the annual pace to 2.9%, down from 3.1% in the prior quarter and back within the target band of 1% to 3%.

However, the data will only capture the initial impact of the post-war oil spike.

Inflation risks have led markets to aggressively bet on policy tightening from the Reserve Bank of New Zealand, laying 27% odds that it will lift the current 2.25% cash rate to 2.5% at the next meeting in May.

A total of 70 basis points of tightening has been priced in by year-end.