NZD extended its gains against the USD last week. However, the Kiwilost ground against its trans-Tasman counterpart, as robust Australianlabour market data propelled the Aussie higher. The Kiwi retracedmodestly off the back reports that a US-Iran peace deal could take upto six months to negotiate. That said, the currency experienced aboost following an announcement that the Strait of Hormuz had beenreopened. However this optimism was short-lived, as Iran announcedover the weekend that the Strait was re-shut given the ongoing USblockade. Indeed, the Kiwi opened lower this morning off the back offthis news.Locally, March SPI data showed an immediate inflationary impactfollowing the Middle East conflict. Diesel prices surged 42.6% m/m,whilst petrol prices rose 18.6% m/m. Despite these sharp price risesthrough the month, the SPI data suggests that NZ headline CPI willlikely ease through the March quarter. That said, as flagged by theRBNZ last week, the pass-through of higher global oil prices and higherinput costs is expected to drive annual inflation higher later this year,with the Bank expecting headline inflation to jump to 4.2% by June. Additionally, March retail electronic card spending rose 0.7% m/m, but this was driven entirely by a massive 17% spike in fuel expenditure.Conversely, core spending -which excludes fuel contracted by a fell0.1% m/m as consumers cut back on discretionary spend. Despite thismonthly squeeze on discretionary categories, retail spending over theMarch quarter was up 1% q/q indicating that household spendingmomentum had been building prior to the geopolitical shock.Looking ahead, the focus shifts to Tuesday’s Q1 CPI print. Marketexpect annual headline inflation to ease to 2.9%, slightly below theRBNZ’s forecast of 3.0%. Elsewhere, the focus will be on the April 21expiration of the US-Iran ceasefire. While an extension of the ceasefireis likely already priced in, a definitive resolution - whilst unlikely - wouldprovide a more assured boost for the currency. Nevertheless, the localcurrency remains highly sensitive to breaking geopolitical headlines.
