Australia, New Zealand dollars vulnerable as Israel-Iran conflict escalates

SYDNEY: The Australian and New Zealand dollars remained vulnerable to declines on Monday as the conflict between Israel and Iran showed no sign of cooling and oil prices climbed anew, although the sell-off in global stocks did steady slightly.
The Aussie dropped 0.3 per cent to US$0.6470, having fallen 0.7 per cent on Friday to as low as US$0.6457. It has support at the 200-day moving average of US$0.6429, while resistance is stiff at US$0.6550.
The New Zealand dollar was flat at US$0.6008, after diving 0.9 per cent on Friday to as low as US$0.5996. It has support at 60 US cents.
On Monday, Wall Street futures climbed slightly while currency markets were mostly calm as investors assessed the latest developments in the Middle East. Iranian missiles struck Israel's Tel Aviv and the port city of Haifa on Monday, destroying homes and fuelling concerns that the situation could escalate into a broader regional conflict.
"The main influence on AUD/USD this week is likely to be the conflict in the Middle East and the FOMC meeting," said Joseph Capurso, head of international economics at the Commonwealth Bank of Australia, referring to the US Federal Open Market Committee meeting starting on Tuesday.
"AUD/USD could fall nearer support at 0.6307 if the conflict escalates significantly."
Strategists from Deutsche Bank noted that the performance of the Australian dollar has a negative correlation with oil prices, even though Australia has become an energy exporter in recent years.
Australia will publish monthly jobs figures on Thursday, where expectations are for a gain of 25,000 jobs in May and a steady jobless rate of 4.1 per cent.
The labour market has been surprisingly resilient, and another strong print could challenge market pricing for a rate cut next month, which is now priced at 75 per cent.
New Zealand will release its first-quarter gross domestic product figures on Thursday, where forecasts are for a solid quarterly growth rate of 0.7 per cent as the economy emerges from a policy-induced downturn.
"Our 0.7 per cent growth forecast is an upgrade from our previous estimate of 0.4 per cent... The signs of strength in the sectoral data were something of a surprise for us," said Michael Gordon, senior economist at Westpac.
Swaps imply there might be just one rate cut left in the current easing cycle from the Reserve Bank of New Zealand, which is more than fully priced in by November.

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