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Last week was marked by a questionable rally on hopes that peace was just around the corner, but weekend news dampened that optimism, and the week opens on a mixed note with many unanswered questions. The Strait of Hormuz is reportedly closed again, Iran is not happy with the US blockade and even less with a ship being seized a few hours ago, and is no longer willing to attend the upcoming negotiations until the blockade is lifted. Donald Trump continues to threaten to destroy the country’s power plants and bridges.

As a result, US crude jumped at the open but has since given back part of its earlier gains. It is about 5% higher at the time of writing, while Brent crude is up by around 3.4%.

US and European equity futures are down, but Asian indices are up. Tech-heavy indices, in particular, are doing just fine this morning—despite the jump in energy prices—as news on the AI front has been very encouraging. As long as oil prices remain below the $100pb level, investors seem willing to maintain—and even increase—exposure to technology names.

Korean Kospi index, which was one of the most heavily hit Asian indices on the war news, is back near the peak levels seen before the conflict started. Investors have returned to the memory chip shortage theme, keeping demand for Korean champions Samsung Electronics and SK Hynix strong. Both are flirting with new all-time highs, thanks to robust and resilient AI demand.

Earnings last week added to that optimism, as TSMC, which builds chips for tech giants like Nvidia and Apple, reported a 58% surge in profit in the three months to March and said it expects revenue to grow more than 30% this year—above its previous guidance. Meanwhile, ASML, which sells machines to chipmakers, raised its full-year sales forecast on AI demand, signaling that the war in Iran has not depressed AI investment and is unlikely to derail the AI rally. The Japanese Nikkei 225 pared early losses after hitting an all-time high last Friday, while the Hang Seng Index is up around 0.83%.

If I could say one thing about my travels across Asia over the past weeks, I would say that I have been impressed—and left speechless—by the few days I spent in China. The technology, the EVs, the robots—it felt like landing on a different planet, in a different era. Since then, I haven’t stopped reading EV news, and I can tell you: Chinese EVs are something else from a technology, design and cost perspective. The technology gap is now such that import tariffs on Chinese EVs in Western economies may delay their arrival, but are unlikely to protect traditional brands. Many are already striking deals with Chinese producers to stay afloat.

That said, Chinese EV makers are not necessarily cheap. BYD is trading at a P/E ratio of around 27 and has been under pressure due to an aggressive price war in the EV space. Still, it is hard not to see a bright future for these companies after experiencing the products firsthand.

Anyway, that was a brief personal note.

In focus today

There is no tier-1 data scheduled for release today. Attention shifts to developments in the Middle East and broader market dynamics.

In Sweden, Riksbank governor Erik Thedéen will be holding a speech with the title: "The old world order is cancelled: Investments for competitiveness and security". Markets will be looking for comments on how the US-Iran war might impact the policy decision from the Riksbank going forward.

This week brings the first key data for April, with Thursday's flash PMIs for the euro area, US, UK, and Japan in focus. European manufacturing is expected to weaken sharply due to higher energy prices, and price components may hint at whether energy costs are filtering through to other prices. On Tuesday, markets eye Germany's ZEW survey and UK labour market data, followed by Swedish unemployment and UK inflation figures on Wednesday.

Economic and market news

What happened overnight

The Middle East conflict escalated early this morning as the US intercepted an Iranian cargo ship trying to breach its maritime blockade, prompting Iran to vow retaliation. The prospects for a second round of negotiations remain uncertain ahead of the ceasefire's expiration on Tuesday, with Iran refusing to participate unless the blockade is lifted. Meanwhile, the US Treasury has extended Russian oil sanctions exemptions by one month, casting doubt on Washington's confidence in a swift resolution.

Oil prices rebounded, with Brent crude trading at USD 95/bbl this morning, as the market digested the turmoil around the Strait of Hormuz. The market is likely to stay volatile this week as US and Iran will try and negotiate a deal. If oil does not start flowing through the strait soon, oil prices are likely to rise further and above USD 100/bbl again.

In China, the central bank kept the 1-year and 5-year Loan Prime Rates unchanged, as widely expected. While we expect monetary easing in the coming months, the LPRs normally change only following changes in the 7-day reverse repo rate, which has not been adjusted since May last year.

What happened over the weekend

The Middle East conflict seesawed over the weekend, starting on Friday with Iran declaring the Strait of Hormuz open for the remainder of the 10-day US-brokered truce between Israel and Lebanon - a key Iranian demand. Brent crude closed at 90USD/bbl on Friday, buoyed by optimism surrounding a lasting peace deal. However, Iran quickly reversed course, re-closing the strait after the US confirmed its shipping blockade would continue. Tensions escalated further as Iran was accused of firing on vessels near the strait.

In the US, Fed Governor Waller suggested the central bank may need to hold rates steady for an extended period, citing the challenge of balancing high inflation alongside a weak labour market. Waller noted that the labour market's "break-even" point - where hiring sustains the unemployment rate - may now be close to zero, implying fewer new jobs are required to stabilise unemployment. This marks a shift from his earlier concerns about low hiring levels and thus reflects a more hawkish tone. Despite being among the most dovish FOMC participants, Waller's March vote supported holding rates steady.

Equities: Friday's price action was dominated by the news that the SoH was open for traffic for as long as the ceasefire lasts. Global equities rose 1.2%, S&P hit new all-time highs amid closing 1.2% higher, Nasdaq was 1.5% higher, Russell 2000 2.1% higher. The rally was naturally broad-based given the geopolitical relief of nature, thus the rally was led by consumer discretionary, industrials and IT, while only Energy and Utilities were lower.

FI and FX: Friday afternoon the news that Iran will open the Strait of Hormuz triggered broad-based risk-on sentiment with oil dropping below 90 USD/bbl, EUR/USD briefly touching 1.1840 and a broad-based decline in yields across tenor and regions. However, over the weekend, the war in the Middle East escalated yet again as Iran quickly reversed course, re-closing the strait after the US confirmed its shipping blockade would continue. As a result, oil prices rebounded overnight as the market digested the turmoil around the Strait of Hormuz. The market is likely to stay volatile this week as US and Iran will try to negotiate a deal. If oil does not start flowing through the strait soon, oil prices are likely to rise further and above USD100/bbl again, putting upward pressure on yields and downward pressure on EUR/USD. In other news, EUR/DKK rose to 7.4735 on Friday, which is above the level, where Danmarks Nationalbank sold EUR/DKK in FX intervention in March 2020. EUR/DKK has traded close to previous intervention level since Wednesday last week. The rise towards the end of last week further raises the odds of FX intervention this month.

Daily Pivots: (S1) 0.7141; (P) 0.7181; (R1) 0.7209; More...

Intraday bias in AUD/USD is turned neutral again with current retreat. Some consolidations would be seen first, but downside should be contained above 0.7000 support. On the upside, above 0.7221 will extend the larger up trend to 61.8% projection of 0.6420 to 0.7187 from 0.6832 at 0.7306. However, break of 0.7000 will bring deeper fall back to 0.6832 support instead.

In the bigger picture, rise from 0.5913 (2024 low) is still in progress. Decisive break of 61.8% retracement of 0.8006 to 0.5913 at 0.7206 will solidify the case that it's already reversing the down trend from 0.8006 (2021 high). Further rally should then be seen to retest 0.8006. For now, outlook will remain bullish as long as 0.6832 support holds, in case of pullback.

Markets began the week with a measured response to intensifying US–Iran tensions, even as the ceasefire showed visible signs of strain. The Dollar edged higher and oil prices rebounded, but broader markets remained composed, indicating that investors are not yet pricing a full shift toward conflict. The retreat of the “peace trade” is evident but incomplete. Oil’s move higher reflects a partial reintroduction of geopolitical risk, yet the absence of a sharper breakout above $100 suggests that supply disruption is not the base case. This balance is keeping risk sentiment broadly intact.

Equity markets in Asia reinforced this interpretation, trading modestly higher despite the negative headlines. The resilience underscores a prevailing view that while risks are rising, they have not yet crossed a threshold that would force a decisive repositioning. In FX markets, Dollar’s recovery has been notable but lacks conviction. For now, the move appears more corrective than directional, consistent with a broader market environment characterized by uncertainty rather than clear trend formation.

Beneath the surface, however, the ceasefire is being tested across multiple fronts. A series of escalating developments has weakened the foundation of the agreement, even if none has yet triggered a full breakdown in market expectations.

The naval blockade remains the most persistent point of contention. Iran views the continued US presence and restrictions as a violation of the ceasefire terms, while the US maintains that enforcement will continue until a final settlement is secured. This disagreement reflects a deeper impasse over sequencing and trust.

Meanwhile, the situation in the Strait of Hormuz has become increasingly volatile. The reversal from a brief reopening to renewed closure has reintroduced uncertainty around maritime access, with Iran now imposing stricter controls and issuing warnings to commercial vessels.

The “Desh Garima” incident has further heightened tensions. The reported interception and damage of an Iranian-linked vessel by US forces has been framed by Tehran as an act of aggression, raising concerns that isolated incidents could escalate into broader confrontation.

Meanwhile, the situation regarding the second round of US-Iran peace talks in Islamabad is currently in a state of high-stakes diplomatic whiplash. There is a direct contradiction between Washington and Tehran regarding whether these talks will even happen. The "second round" may end up being a one-sided arrival.

From Washington’s side, President Donald Trump said over the weekend that a high-level US delegation would travel to Pakistan, led by Vice President JD Vance, to advance discussions. Trump struck a cautiously optimistic tone, stating that the “concept of the deal is done,” suggesting that remaining negotiations are focused on final implementation details rather than core disagreements.

Iran, however, has pushed back forcefully against that narrative. According to the state-run Islamic Republic News Agency and national broadcaster, Tehran has not agreed to participate in a second round under current conditions. Iranian officials described the US announcement as a “media game” designed to create diplomatic pressure, rejecting the idea that talks are progressing toward a finalized agreement.

For markets, this leaves a narrow but critical window of uncertainty ahead of the April 22 ceasefire deadline. The coexistence of escalating tensions and unresolved diplomacy is keeping positioning cautious. Until one narrative clearly dominates, markets are likely to remain steady—absorbing shocks, but not yet reacting decisively.

In the currency markets, for the day so far, Dollar is currently the strongest, followed by Loonie, and then Euro. Aussie is the worst, followed by Yen, and then Kiwi. Sterling and Swiss Franc are positioning in the middle.

Gold Drops as Ceasefire Cracks, But Oil Says Markets Aren’t Pricing War Yet

Gold drops as US–Iran ceasefire cracks, but oil below $100 signals markets aren’t pricing war. Fading momentum leaves gold vulnerable to a deeper move toward the 4,000 level if tension turns into conflicts. Read More.

China Holds LPR Steady for 11th Month, Signals Stability Amid Global Risks

China kept its benchmark lending rates unchanged for an 11th straight month, reinforcing a cautious stance as policymakers balance growth support against rising global risks. With the PBoC signaling a “moderately loose” policy bias but prioritizing currency stability, markets are watching how Beijing navigates geopolitical and trade tensions. Read More.

New Zealand Posts NZD 698M Trade Surplus as China, Australia Drive Export Growth

New Zealand’s trade surplus held at NZD 698M in March as exports climbed on strong demand from China and Australia, but a faster surge in imports signals rising domestic demand and cost pressures. Read More.

AUD/USD Daily Report

Daily Pivots: (S1) 0.7141; (P) 0.7181; (R1) 0.7209; More...

Intraday bias in AUD/USD is turned neutral again with current retreat. Some consolidations would be seen first, but downside should be contained above 0.7000 support. On the upside, above 0.7221 will extend the larger up trend to 61.8% projection of 0.6420 to 0.7187 from 0.6832 at 0.7306. However, break of 0.7000 will bring deeper fall back to 0.6832 support instead.

In the bigger picture, rise from 0.5913 (2024 low) is still in progress. Decisive break of 61.8% retracement of 0.8006 to 0.5913 at 0.7206 will solidify the case that it's already reversing the down trend from 0.8006 (2021 high). Further rally should then be seen to retest 0.8006. For now, outlook will remain bullish as long as 0.6832 support holds, in case of pullback.

Gold gapped lower at the week's open as cracks in the US–Iran ceasefire deepened just days before the April 22 expiry. Yet markets have stopped short of panic for now, with oil prices rising but still restrained—falling short of signaling a full repricing toward war. At the same time, Gold’s upward momentum is already fading, leaving it vulnerable. Any further geopolitical deterioration could quickly trigger a reversal lower back towards 4,000 handle.

The breakdown in diplomacy is becoming clearer. The “double blockade” dynamic has emerged as the core constraint, with both sides unwilling to concede control over the Strait of Hormuz. Iran has pulled out of follow-up talks ahead of the deadline, citing ongoing US blockades and escalating demands. Still, markets are not treating this as a definitive escalation event. The White House has yet to formally cancel talks, keeping alive the possibility of a last-minute framework.

Oil is anchoring that restraint. Prices have pushed higher but remain below the critical $100 war threshold, while the Brent–WTI spread is holding near normal levels around $5. This matters. Without a break higher in oil, the current setup reflects instability without escalation, limiting broader risk-off flows.

Technically, Gold’s rebound from 4,098.45 is already fading. Bearish divergence on 4H MACD signals weakening upward momentum, with 4,644.49 now the key near-term support. A break below would confirm that the corrective bounce has run its course, shifting bias back to the downside for a retest of 4,098.45.

The next catalyst remains oil. A decisive break above $100—especially if accompanied by a tightening or even inversion of the Brent–WTI spread—would signal that markets are finally pricing escalation. Until then, Gold is likely to stay rangebound rather than collapse, caught in a market that is still hopeful for diplomacy, but not yet pricing war.

Key Highlights

• EUR/USD gained bullish pace for a move above the 1.1800 zone.
• A major bullish trend line is forming with support at 1.1680 on the 4-hour chart.
• GBP/USD climbed toward 1.3620 before correcting some gains.
• WTI Crude Oil prices are under pressure below $93.20 and $92.50.

EUR/USD Technical Analysis

The Euro remained elevated above 1.1650 against the US Dollar. EUR/USD started a decent increase above the 1.1700 and 1.1750 resistance levels.

Looking at the 4-hour chart, the pair settled above the 1.1720 level, the 100 simple moving average (red, 4-hour), and the 200 simple moving average (green, 4-hour). A high was formed at 1.1849 before there was a downside correction.

The pair dipped below 1.1780. Immediate support is seen near 1.1700 or the 38.2% Fib retracement level of the upward move from the 1.1443 swing low to the 1.1849 high.

The next support could be 1.1650 and the 50% Fib retracement or the 100 simple moving average (red, 4-hour). A close below 1.1650 might push the pair toward 1.1600 and the 200 simple moving average (green, 4-hour).

Any more losses could initiate a fresh move to 1.1500 in the coming days. On the upside, the pair faces resistance at 1.1820. The first major resistance sits at 1.1850.

The main resistance could be 1.1880. A close above 1.1880 could open doors for gains above 1.1920. In the stated case, the bulls could aim for a move to 1.2000.

Looking at Oil, the price started a consolidation phase, and upside might face resistance near $92.50 and $93.20.

Upcoming Key Economic Events:

• German Producer Price Index for March 2026 (MoM) – Forecast +1.4%, versus –0.5% previous.

The People’s Bank of China left its benchmark lending rates unchanged for an 11th straight month in April, in line with expectations, as policymakers prioritize stability amid rising global uncertainty. The one-year loan prime rate was held at 3.0%, while the five-year LPR, a key reference for mortgage lending, stayed at 3.5%.

The decision reflects a cautious policy stance as Beijing balances the need to support domestic growth against external risks. The PBoC reiterated that it will maintain a “supportive” and “moderately loose” monetary policy this year, signaling readiness to underpin economic activity without resorting to aggressive easing. .

Speaking at the International Monetary Fund meetings in Washington last week, Governor Pan Gongsheng highlighted growing risks from geopolitical tensions, protectionism and trade barriers, warning that these forces are weighing on global growth and increasing financial volatility.

New Zealand’s external sector showed resilience in March, with goods exports rising by 7.3% yoy to NZD 7.9B, outpacing imports which increased by 9.6% yoy to NZD 7.2B. The result was a monthly trade surplus of NZD 698M, larger than expectation of NZD 175M.

Export growth was led by strong demand from key partners, particularly Australia and China. Shipments to Australia surged by 38%, while exports to China rose by 11%, reinforcing Asia-Pacific demand as a key pillar for New Zealand’s trade performance. Gains were also seen in exports to the EU (+14%) and Japan (+4.1%), though a decline in shipments to the US (-5.9%) partially offset the overall momentum.

On the import side, increases were broad-based and more pronounced, with China, Australia, and South Korea leading the gains. Imports from China jumped 20%, while purchases from South Korea surged 54%.

Full New Zealand trade balance release here.

The US economy is facing a very uncertain future with inflation up and consumer sentiment at record lows.

Headlines tied to the US economy continue to focus on President Trump’s Middle East actions and the consequences for global energy prices. Abstracting from this news storm, however, the message from available economic data is the US economy slowed below trend ahead of the conflict, leaving the economy at risk of stalling, at least briefly.

In understanding the US’ current state and outlook, it is best to assess recent data chronologically. First estimated at 1.4% annualised, Q4 GDP growth has since been revised to just 0.5%. Underlying the headline revisions, personal consumption growth throttled back from a near-trend 2.4% to a sub-par 1.9%, and business investment from an already-weak 3.7% annualised to 2.4%, as residential investment contracted 1.7% annualised.

Come January and February 2026, personal consumption expenditure was essentially flat and core goods order growth slowed to less than a third of Q4’s pace. We do not have reliable data to back the assertion, but it is hard to believe the recent rise in the US 10-year yield and pass-through to the 30-year mortgage rate won’t put additional pressure on residential construction. The current Atlanta Fed GDPNow estimate of 1.3% annualised therefore seems likely to slip through April before the formal Q1 GDP result is released by the BEA.

Another step down in momentum, perhaps into outright contraction, come Q2 is clearly a risk. The only data to hand for April is the University of Michigan’s consumer sentiment survey. Worryingly, the headline index fell to its weakest read on record at 47.6 – an impressive feat considering the survey dates back to 1978 and has averaged 83.8 since, 43% above April’s read. Notably, both current conditions and expectations are at all-time lows, and this is despite nonfarm payrolls having bounced back in March and equity markets, in aggregate, showing resilience.

While nonfarm payrolls have averaged a gain of 68k the past three months, this follows the average loss of 8k jobs per month through the second half of 2025 and material downward revisions to historical estimates prior to that. Household employment outcomes have also been materially weaker over the period. The unemployment rate is essentially unchanged since Q2 2025, but the participation rate has fallen almost 0.7ppts over the period, implying an unemployment rate of 5.0% on a constant participation basis. While not an alarming level historically, relative to the average of the past five years, it implies a marked turn in job creation and building downside risks for activity. This is corroborated by the 1.5ppt decline in the household savings rate since April 2025.

Providing a potential offset is record household wealth. Still, with sentiment as it is, and wealth needing to be liquidated or leveraged to be spent, any wealth effect for consumption is likely to take considerable time to materialise. Furthermore, whereas in the past, the use of wealth by higher-income households could have been complemented by tax breaks and/or cash support for those on lower-incomes, US fiscal authorities no longer have capacity outside of recession.

Taken together, current income and wealth dynamics in the US not only suggest growth is at risk of stalling out mid-year, but also that it could remain weak for an extended period. Thankfully, the FOMC remains equipped with the capacity to support the economy should risks to activity become dominant.

As such, it will be important to assess how the FOMC incorporates upcoming inflation detail into their risk calculations. We expect they will be heartened that the Middle East conflict only impacted headline inflation in March, a 10.9% increase in energy prices tripling the total monthly CPI gain to 0.9%, while core inflation printed at a benign 0.2% (core goods prices up 0.1%, and services 0.2%). Although we still believe capacity constraints across the US economy are likely to hold annual core inflation around the 2.6%yr registered in March throughout 2026, this deviation from target is not material enough to preclude further easing if downside risks for the labour market crystallise come Q2 or Q3.

In contrast to the UK and Europe (and Australia and New Zealand), the chance of a policy rate increase is also slim to non-existent in the US. The outlook for short-end rates should therefore limit gains in term yields to a modest upward drift, a function of gradual portfolio reallocation away from US dollar assets and the edging higher of the US fiscal deficit and government debt.

This analysis was initially released in the April edition of Westpac Market Outlook.

Chinese exports will receive a material boost from high oil prices. The consumer remains a risk to GDP growth, however.

China’s economy has begun 2026 in good health despite the conflict in the Middle East, registering annual GDP growth of 5.0% in Q1. In time, recent developments are likely to prove a net positive for China, spurring greater demand for green technology across developed and developing markets.

Not only were the March readings for the official NBS manufacturing and services PMI’s favourable, registering increases to 50.4 and 50.1, but the partial data through February and March showed the beginning of a long-awaited stabilisation in consumer demand and turn for housing investment, retail sales growth beating estimates in February at 2.8%ytd (although growth slowed again in March to 2.4%ytd) and the decline in property investment almost halving from –17.2%ytd in December to –11.2%ytd in March. The latter result is particularly welcome given construction activity has declined almost 40% since end-2021.

In the short term, an end to the sharp decline in property investment will add meaningfully to economic growth given the sector still makes up circa 15% of the aggregate economy. In the medium to long-term though, not only will investment activity need to expand sustainably, but wealth must follow. As yet, there is no evidence of price growth, with new and existing home prices falling a further 0.2% in March.

We remain circumspect on the rate at which retail sales growth will accelerate from here near term, anticipating it is unlikely to return to trend, let alone outperform, until pro-active fiscal policy comes into effect. Authorities signalled an intention to act at the March NPC, but detail has been scarce since.

It is potentially the case that the Government wants clean air for reforms, which the Middle East conflict and the upcoming May meeting between President Xi and President Trump precludes for now. Though authorities may also feel the domestic economy has been given additional time to find its own path without intervention. The response of consumers and businesses across developed and developing markets to the current surge in energy prices will almost surely be an acceleration in demand for renewable energy products and electric vehicles, which China is globally dominant in and has ample spare capacity to produce and ship.

Even without a further material improvement in domestic demand, the short-term downside risks for Chinese GDP growth are receding thanks to this catalyst. Note too, the positive impulse is likely to prove lasting as geopolitical uncertainty over energy supply produces a national imperative to reduce reliance on the Middle East, particularly amongst south-east Asia, Latin America and Africa, where Chinese firms are experiencing particularly rapid demand growth.

Indeed, the learnings from this crisis, and what is expected to be a favourable result from the May meeting between President Xi and President Trump, could also skew long-term risks for Chinese growth and sentiment to the upside. This is not to say that 5.0% growth is probable for 2026–2028, but rather that growth is increasingly likely to stabilise around 4.5% instead of 4.0%.

Attaining annual growth of 5.0% over successive years would require material gains for trade, industrial investment, property construction and household consumption. The latter would necessitate a dramatic turn in actual and expected wealth and sentiment, however. While not impossible, given the poor starting point on both fronts, this is best considered a low probability and long-coming upside risk.

Sooner than later though, the favourable shift in global opportunities and risks for China is likely to support stronger demand in Chinese financial instruments. Yields and credit spreads will remain compressed, enticing additional real economy investment, and equities should see sustained inflows of new capital.

Paired with continued strength in the trade balance and the returns from offshore investments currently being made by Chinese firms, demand for the renminbi will grow in depth and breadth. Given the diversity of Chinese interests across the globe, currency gains are expected on a trade-weighted basis but will be most acute bilaterally versus the US dollar – the only currency Chinese entities look to be reducing their exposure to. Importantly, trade-weighted currency gains are likely to be proportional to China’s competitiveness opportunities, and so should not materially narrow the current account.

This analysis was initially released in the April edition of Westpac Market Outlook.