Australia, New Zealand dollars bounce as US extends ceasefire with Iran

[SYDNEY] The Australian and New Zealand dollars bounced on Wednesday as the US 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 per cent at US$0.7157, having fallen 0.4 per cent overnight to as low as US$0.7130 as plans for a second round of negotiations between Washington and Teheran fell apart. It is now facing resistance at a four-year top of US$0.7222, while support is around US$0.7115.

The kiwi dollar rose 0.2 per cent at US$0.5904, after trimming most of its post-inflation gains overnight to finish 0.1 per cent higher. It faces resistance at the five-week top of US$0.5929.

US 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 per cent 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 per cent cash rate by a quarter-point next month. That is now priced at a 51 per cent probability, up sharply from under 30 per cent a few days ago.

Two-year swap rates rose 6 basis points on Wednesday to 3.4545 per cent, after gaining 5 bps overnight.

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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. REUTERS