Australia, NZ dollars set for weekly loss as oil jumps, stocks fall

SYDNEY: The Australian and NewZealand dollars were headed for weekly losses on Friday, as investors fretted over whether the fragile Middle East ceasefire would hold, while sharply higher crude oil prices stoked more bets of rate hikes to contain inflation.

Brent crude futures have surged 17% so far this week to $106.2 per barrel, poised to mark their first weekly rise in four. Overnight, reports that air defences were engaging targets over Tehran raised fears of a re-escalation in the Middle East conflict, although Israel agreed to extend the ceasefire with Lebanon for another three weeks.

The Aussie held at $0.7130, after slipping 0.5% overnight to as low as $0.7110 as global stocks retreated from record highs. Having scaled a fresh four-year peak of $0.7222 last Friday, it is set for a weekly drop of 0.5%, with support solid at 71 cents.

The kiwi was also steady at $0.5856, having skidded 0.9% overnight to as low as $0.5840. It is down 0.4% for the week to end a two-week winning streak, with a hot inflation reading raising bets of a rate hike as soon as next month cushioning the fall a little.

Swaps now imply a 60% probability that the Reserve Bank of New Zealand will have to lift its 2.25% cash rate by a quarter-point in May, up from under 30% just a week ago, as the closure of the Strait of Hormuz risked lifting energy prices further.

Across the Tasman Sea, there is an 80% chance that the Reserve Bank of Australia will hike rates for a third time this year to 4.35% in May, with all eyes on its first-quarter inflation report due next Wednesday.

ANZ expects a 0.9% quarterly rise in the trimmed mean measure of core inflation, which would lift annual growth to 3.6%, above the central bank’s target band of 2%-3%. Headline inflation likely rose to 4.1%, the highest since late 2023.

“Our forecast has some upside risk, with a 1.0% q/q print more likely than a 0.8% q/q,” said Madeline Dunk, an economist at ANZ, who is tipping a hike in May.

“There is some uncertainty around the extent and pace of second-round pass-through from higher fuel costs. We expect this to start having a more material impact on CPI from April.”