Geopolitical Tensions Drive Risk Aversion
Iran’s Foreign Minister Abbas Araghchi said there had been no dialogue with Washington. Parliament Speaker Mohammad Bagher Ghalibaf said on Monday that no negotiations had taken place with the US, while adviser Mohsen Rezaei said the conflict would continue until Iran receives full compensation for damage. Reuters reported that San Francisco Fed President Mary Daly said interest-rate prospects remain uncertain unless the conflict eases quickly and the Fed can look past a temporary oil price spike. RBNZ Governor Anna Breman said near-term inflation could rise due to energy shocks and that rate rises may be needed if inflation pressures persist. With risk aversion dominating markets due to the Mideast conflict, we see continued pressure on the NZD/USD pair. The immediate strategy leans towards establishing short positions or buying put options targeting a move towards the 0.5700 handle. Looking back at the volatility in late 2025, we know that support levels can be fragile during periods of intense geopolitical stress. The contradictory statements from Israeli, Iranian, and US officials suggest this situation will not resolve quickly, fueling market uncertainty. We are seeing implied volatility on NZD options spike over 15%, reflecting the high price of uncertainty as Brent crude futures push past $115 a barrel. This environment is well-suited for strategies that profit from large price swings, such as long straddles, though they come at a higher premium.Central Banks Focus Meets Safe Haven Demand
While both the Fed and the RBNZ are signaling that persistent inflation could force their hand on rates, the US dollar’s safe-haven status is the dominant factor for now. Any hawkish talk from the RBNZ will likely be muted by the global flight to safety, capping any potential upside for the Kiwi dollar. After finally getting core inflation back towards the 3% target in 2025, this new energy shock presents a significant setback for central banks. Create your live VT Markets account and start trading now.
Start trading now – Click here to create your real VT Markets account
