Oil prices track higher, with no evidence of Russia/Ukraine ceasefire and hostilities in the Middle East continue. USD broadly stronger. NZD weaker on key crosses, sending NZ TWI down to fresh 15-year low

With the US, Canada and Japan observing holidays, the trading week has begun quietly. However, risk appetite is weaker: oil prices are tracking higher, US bond futures are slightly softer, and the USD is broadly stronger. NZD/USD has moved lower, although support at 0.5580 is holding for now.

Oil prices have climbed overnight, with Brent crude rising 2% from last week’s close to around USD107. President Trump’s declaration on Truth Social early yesterday morning that an energy ceasefire had been reached in the war between Russia and Ukraine was fake news, with neither country confirming such an agreement. Russia has continued to attack Ukraine. President Zelensky said he learned of the so-called ceasefire through the media, and it is clear that President Putin does not read Truth Social.

Meanwhile, the Iranian-backed Houthis have continued their attacks on Saudi Arabia, targeting energy infrastructure after successfully striking airports over the weekend. Saudi Arabia has sought to project defiance in the face of the attacks. The IRGC continues to target ships attempting to cross the Strait of Hormuz and claims to have struck another oil tanker, the third hit over the past two days.

The US cash bond market is closed, but US equities are trading and are relatively flat. The 10-year US bond future is slightly lower, implying a small rise in rates. This week’s focus will be on the September US CPI data, due tomorrow night, with the consensus expecting the core rate to rise by 0.2% m/m. European rates are mostly little changed, apart from those in France, where the French-German 10-year spread has widened by 5bps to 142bps.

In currency markets, weaker risk sentiment has supported broad-based gains in the USD, with the DXY index up 0.4%. The NZD has trended lower overnight and is down 0.5% from last week’s close at 0.5585, holding just above support at 0.5580 for now. The AUD is weaker at 0.6960, while NZD/AUD has fallen to 0.8025. All other key NZD crosses are also modestly weaker, pushing the NZ TWI to a fresh 15-year low below 66.7.

The euro has fallen to a fresh 17-month low of around 1.1155, while NZD/EUR is holding just above 0.50. The PBoC continues to allow the yuan to appreciate, although it is maintaining a tight rein on the pace of appreciation. USD/CNY has fallen to a fresh 3½-year low of 6.69, while NZD/CNY is trading at a 17-year low of 3.7375.

In the domestic rates market yesterday, NZ rates moved lower, broadly following Australian yields. NZGB yields fell by 1–4bps across the curve, with a modest flattening bias. The 2-year swap rate was marked down 1bp to 4.00%, while the 10-year rate was marked down 4bps to 4.72%.

Only second-tier data releases are scheduled over the coming day. Fed Governor Waller is due to speak, although we heard his views last week so we aren’t expecting any new twists.

Jason Wong is the senior Markets Strategist at BNZ Markets.