The dollar is having a bit of a choppy last few sessions, having to deal with geopolitical risks and the Supreme Court decision in shooting down Trump’s tariffs. The former is mostly centering around tensions between US and Iran right now. And despite uncertain and erratic policy handling by the US administration, the dollar isn’t exactly too heavily punished like what we saw in response to the Venezuela situation last month. Or perhaps, not so much yet.
That being said, BofA is taking on a different view here with Iran being a bigger risk factor for both the oil market and equities. Taking that into consideration, they argue that the dollar may yet benefit from any material escalation in the current rhetoric:
“Middle East geopolitical uncertainty will be a key focus ahead, with Polymarket odds of a US military strike against Iran (by end June) rising sharply this week to 69%. We outline scenarios: the market impact of military action would depend upon the duration of any conflict. For G10 FX, the likely configuration of higher oil prices and lower global equities, would be broadly positive for USD especially vs. NZD, AUD & SEK, in contrast to the price action when both oil and equities rise. Our preferred hedge for Iran escalation would be short NZD/USD, given its risk beta as well as New Zealand’s dependence upon energy imports.”
Well, it’s certainly an interesting proposition with NZD/USD continuing to keep in a technical cage around 0.5900 to 0.6075 since rising in late January. The latest meandering in the past week is testing the floor of that range, which looks to be holding with the currency pair catching a light bounce today to 0.5965 currently.
A firm break away from this range will free up room towards the 200-day moving average next around 0.5875 currently.
This article was written by Justin Low at investinglive.com.