Renewed Iran Tensions, NFP & Gold in focus
- US-Iran tensions escalate as both sides exchange fire
- April NFP report could be market shaker
- Oil benchmarks remain at triple-digits
- Gold pressured by inflation fears
Ten weeks in and the Iran war has shown no signs of a clean ending.
Peace talks have been stagnant since mid-April; the Strait of Hormuz remains closed while the global economy absorbs the pressure.
Over the weekend, Trump described recent talks as “very positive”, only for Iran to fire missiles at the UAE for the first time in almost a month, followed by US/Iran exchanging fire in the Gulf on Monday.
Despite the cautious mood, European markets opened higher on Tuesday as traders observed whether the ceasefire in the Middle East would hold. US equity futures flashed green as bulls drew strength from robust corporate earnings and optimism around AI.
In the FX space, the Australian Dollar is one of the best-performing G10 currencies versus the dollar week-to-date after the RBA raised interest rates yesterday.
Growing fears around conflict-induced inflation have prompted central banks to turn hawkish, raising interest rates. While the AUD may extend gains in the near term, the medium to long-term outlook may be influenced by whether the RBA pauses or hikes further down the road.
It’s a slow start to the week for the Greenback, but heightened geopolitical risk and the incoming NFP report on Friday may trigger high levels of volatility.
The April US jobs report on Friday, 8th May may provide insight into the health of the labour markets.
65,000 jobs are expected to have been created in April, compared to the 178, 000 figure in March while the unemployment rate unchanged at 4.3%. A much stronger-than-expected US jobs data may stimulate bets around the Fed hiking rates. Traders are currently pricing in a 25% chance that the Fed will hike in 2026.
Oil benchmarks found comfort around triple-digits as traders closely monitored the developments in the Middle East.
With both the United States and Iran exchanging fire in the Gulf, this has enforced pressure on an already fragile ceasefire. Prediction markets see only a 40% chance that the Strait of Hormuz traffic returns to normal by end of June. An extended closure may spell higher oil prices for oil benchmarks which are set to fuel inflation fears.
Despite extended periods of uncertainty and growing market fatigue, gold could be stuck at the losing end due to triple-digit oil prices.
Concerns over conflict-induced inflation were apparent when central banks met last week, with the likes of the ECB and BoE expected to hike rates in the summer. If Fed hawks join the party, the path of least resistance for gold is likely to remain south despite the risk-off sentiment.
A fragile ceasefire, novel blockade, NFP and diminishing odds of a US-Iran peace deal may set the tone for gold this week.
Looking at the charts, gold is trending lower with $4600 acting as a sticky level.
Weakness below this point may open the doors toward $4450 and $4320. A daily close above $4600 could trigger a move toward the 21-day SMA at $4710 and the 100-day SMA at $4750.
