The FX market’s potential transition from March’s shock sell-off to April’s tactical stabilization may mark a pivot from the existential geopolitical panic of Operation Epic Fury toward a market increasingly acclimated to President Donald Trump’s strategy of rolling ultimatums. The Strait of Hormuz’s initial closure in late February triggered a violent liquidation of high-beta currencies, most notably the THB and KRW, as investors braced for a global energy paralysis.
Iran’s shift toward a permission-based transit model (allowing limited, monitored passage) has provided a psychological floor for oil-related disruptions, acting as a catalyst for the recent mean reversion in several major currency pairs. To pre-empt a damaging oil-price/FX depreciation spiral, countries including Japan and India have initiated currency stabilization measures. The markets are realistic enough not to expect a ceasefire but hopeful enough for a managed conflict mirroring that of Ukraine-Russia. In the end, this fragile equilibrium rests on the assumption that President Trump will continue to delay his threats of obliterating Iranian infrastructure, threats that the United Nations has condemned as a violation of the UN Charter and international humanitarian law. The Pentagon reportedly cancelled this morning’s press briefing. Markets remain on the edge ahead of Trump’s ultimatum of April 7 at 8pm ET (or April 8 at 8am SGT).
ISM Services PMI declined notably to 54 in March from 56.1 in February, hit by the escalating conflict in Iran. The employment subcomponent declined to 45.2 from 51.8, signalling a contraction that acted as a reality check to last Friday’s better-than-expected nonfarm payrolls. This hiring freeze coincided with a spike in prices paid to its highest level since late 2022, as businesses grappled with skyrocketing fuel and energy costs stemming from the closure of the Strait of Hormuz. Collectively, the data suggest a shift toward stagflation, putting the Fed in a difficult position. Today, the New York Fed is expected to report 1Y inflation expectations rising to 3.5% in March from 3% in February.
The Reserve Bank of New Zealand will adopt a wait-and-see stance at its April 8 meeting. Governor Anna Breman and Chief Economist Paul Conway will look through the energy-driven headline inflation spike. By holding the official cash rate steady at 2.25%, the RBNZ aims to support a soft landing while avoiding a premature tightening that could risk a return to recession. However, Breman has also signalled a readiness to hike rates should the oil disruptions threaten to de-anchor inflation expectations, i.e., push core inflation and wage growth above the 1-3% target band. If Breman reaffirms this hawkish stance, NZD/USD may find support near 0.5630, along a trendline, after retracing more than 75% of its November-January rally from 0.56 to 0.61.
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April 7 in history
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