Australia, NZ dollars bounce as US extends ceasefire with Iran
- The Aussie inched up 0.1% at $0.7157, having fallen 0.4% overnight to as low as $0.7130
SYDNEY: The Australian and New Zealand dollars bounced on Wednesday as the U.S. extended a ceasefire with Iran indefinitely to allow for further peace talks, with the kiwi getting some added support from firming expectations of a rate hike in May.
The Aussie inched up 0.1% at $0.7157, having fallen 0.4% overnight to as low as $0.7130 as plans for a second round of negotiations between Washington and Tehran fell apart. It is now facing resistance at a four-year top of $0.7222, while support is around $0.7115.
The kiwi dollar rose 0.2% at $0.5904, after trimming most of its post-inflation gains overnight to finish 0.1% higher. It faces resistance at the five-week top of $0.5929.
U.S. President Donald Trump said on Tuesday he would extend the ceasefire with Iran, hours before it was set to expire, to allow the two countries to continue peace talks. The extension helped Wall Street futures rebound more than 0.5% in Asia.
“The situation in the Middle East has not changed: no talks, no fighting, and no ships passing through the Strait of Hormuz. This combination is a bad omen for the world economy,” said Joseph Capurso, head of international economics at the Commonwealth Bank of Australia.
“But for now, market participants are working on the assumption the Strait will reopen soon because its closure is untenable for both the US and Iran.”
A survey from CBA on Wednesday showed Australian companies expected the local dollar to climb to nearly 72 cents by the end of the year, while superannuation funds tipped the Aussie to hover around 71 cents.
In New Zealand, a hot inflation reading had markets ramping up bets the Reserve Bank of New Zealand will have to lift the current 2.25% cash rate by a quarter-point next month. That is now priced at a 51% probability, up sharply from under 30% a few days ago.
Two-year swap rates rose 6 basis points on Wednesday to 3.4545%, after gaining 5 bps overnight.
The RBNZ has warned it would act decisively against inflation if it heats up, although many analysts expect it to keep policy steady for the near term as the impact of the Iran war threatens to derail the nascent economic recovery.
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