Geopolitical Risk And The Dollar
US President Donald Trump said Iran’s civilian infrastructure, including power plants and bridges, could be destroyed if Tehran does not reopen the Strait of Hormuz by Tuesday. Iran said transit could resume if part of the revenue is allocated to compensate Iran for war-related damages, and a deal within the next 48 hours was described as unlikely. Markets are also focused on higher energy prices and the risk of renewed inflation pressures. Traders are pricing a higher probability of a Federal Reserve rate rise in 2026, which could support the US Dollar and limit NZD/USD gains. Attention turns to the US ISM Services PMI later in the North American session. Liquidity is thin due to the Easter Monday holiday in many markets. We are seeing the NZD/USD get a small bounce from its four-month low, pushing past the 0.5700 mark. This is happening because talk of a ceasefire between the US and Iran is temporarily weakening the US dollar’s safe-haven appeal. This reflects a slight shift back into riskier assets.Rates Volatility And Positioning
This relief rally feels fragile, as the chances of a deal in the next 48 hours are low and the geopolitical risks remain very real. The Strait of Hormuz remains a critical flashpoint, with the US Energy Information Administration noting that about 21% of the world’s daily oil supply passes through it. This underlying tension is keeping oil prices volatile and markets on edge. We are also watching the US Federal Reserve, as the conflict-driven surge in energy prices is stoking inflation fears. Based on current futures data from the CME FedWatch Tool, the market is now pricing in a 65% probability of an interest rate hike by the July meeting. This potential for higher US rates creates a strong headwind for any significant NZD/USD recovery. Given this uncertainty, implied volatility on NZD/USD options has climbed, with one-month volatility now sitting around 12%, up from an average of 9% last quarter. This suggests traders should consider strategies that can profit from sharp price swings, such as buying straddles or strangles. Selling options premium right now is a high-risk play without a firm directional view. We saw a similar pattern last year when a geopolitical flare-up in mid-2025 caused the pair to fall from 0.6100 to below 0.5850 before it found a floor. That episode serves as a reminder that these moves can be sudden, making protective puts or other long-dated options a prudent way to hedge. The key difference now is the diverging policy between a hawkish Fed and a more cautious Reserve Bank of New Zealand. For now, the 0.5700 level is a battleground, but the broader trend for the pair remains weak. Any definitive news on the ceasefire could trigger a sharp rally, but we would view that as an opportunity to reassess bearish positions at better levels. We should monitor the US ISM Services PMI later today for any fresh clues on the US economy’s strength. Create your live VT Markets account and start trading now.
Start trading now – Click here to create your real VT Markets account
