US
Peak Iran war financial market fear may be behind us. The two-week ceasefire agreement between the US and Iran, which includes “safe passage” in the Strait of Hormuz over this period, offers markets a tactical reprieve and a window for diplomacy around Iran’s 10-point proposal. The full terms of this proposal have not been formally disclosed but includes recognition of Iran’s sovereignty over the critical Strait of Hormuz. President Donald Trump described the proposal as “a workable basis on which to negotiate.”
Financial markets are leaning hard into relief mode. Brent crude oil prices slumped by roughly 16% while global equities and bond are up sharply. USD plunged across the board with pro-cyclical currencies outperforming. Provided the ceasefire talks don’t break down, USD has room to adjust lower in line with the level implied by US-G6 rate differentials.
The FOMC March 17-18 meeting minutes takes the spotlight today (7:00pm London, 2:00pm New York). The minutes will shed more light on how high or low the hurdle is for a rate hike. Recall, at that meeting the FOMC delivered a hawkish hold and Fed Chair Jay Powell flagged that the possibility that the next move might be a hike “did come up” during the policy discussion. Worth noting that Fed funds futures have swung back to pricing rate cuts after briefly flirting with rate hike bets in late-March.
NEW ZEALAND
NZD/USD surged by over 2% on a solid rebound in risk sentiment. The RBNZ delivered a hawkish hold. As was widely expected, the RBNZ left the Official Cash Rate (OCR) unchanged at 2.25% for a second straight meeting. The RBNZ noted that if the increase in near-term inflation is temporary, the OCR can be normalized gradually to more neutral levels (RBNZ estimated neutral range is between 2.3% and 4.1%). The RBNZ also warned that “decisive and timely increases in the OCR” would be required if there’s “any signs of significant second-round inflationary effects or increases in medium-term inflation expectations.”
The swaps curve has more than fully priced in a 25bps OCR increase to 2.50% by September and a total of 100bps of hikes over the next twelve months. The latest US-Iran ceasefire agreement reduces the risk of a more persist energy shock and argues for a more gradual RBNZ rate hike cycle than markets imply. There is still significant spare capacity in New Zealand’s economy. The output gap is estimated at -1.5% of potential GDP in Q4 2025 and forecast at -0.9% over 2026.
INDIA
USD/INR is range-bound around 92.6000 after falling by 0.5% overnight. The Reserve Bank of India (RBI) voted unanimously to keep the policy rate unchanged at 5.25% for a second consecutive meeting (in line with expectations). The RBI also retained its neutral stance after slashing rates by 125bps in 2025.
The latest US-Iran ceasefire lowers the risk of a prolong energy shock, easing pressure on India’s import bill and providing much-needed relief for INR. In turn, it lessens the need for the RBI’s recent FX curbs (introduce on April 1) which were aimed at limiting speculative selling pressure on the rupee. Indeed, RBI Governor Sanjay Malhotra stressed that the currency market curbs are temporary and will not remain in place forever.
