Oil Just Crossed $90 A Barrel Again

The US-Iran conflict just hit its ninth straight day of American strikes, and the ripple effects are now showing up directly in how Australia and New Zealand's central banks have to think about interest rates. Brent crude climbed 3% to cross $90 a barrel for the first time in over a month, and that single number is complicating monetary policy on the other side of the world.

What's actually happening with the currencies

Both the Aussie and kiwi dollars wobbled on Monday, though both managed to claw back most of their early losses.

The Australian dollar hit a four-day low of $0.6960 before reversing to trade 0.1% higher at $0.6988. That follows a solid 0.5% gain last week, with resistance sitting at the recent three-week high of $0.7021.

The New Zealand dollar had a similar pattern dipping to an intraday low of $0.5827 before recovering to trade roughly flat at $0.5844. It had rallied a stronger 1.4% last week, driven by a hawkish outlook on domestic interest rates.

Why oil prices are the actual story here

The US military has now launched attacks against Iran for nine consecutive days, with Tehran striking back at targets across the region in return, the same escalating conflict we've been tracking, which has already disrupted global shipping through the Strait of Hormuz and rattled auto supply chains.

That extended conflict is what's driving oil prices higher, and Brent crossing $90 a barrel matters specifically for Australia and New Zealand's central banks because higher fuel costs feed directly into inflation. For two countries whose central banks are actively trying to figure out where interest rates need to go next, an oil price spike driven by geopolitical conflict on the other side of the world is exactly the kind of unpredictable variable that makes policy decisions harder.

New Zealand's inflation report is the one to watch

All eyes are on New Zealand's consumer inflation data due Tuesday. The Reserve Bank of New Zealand already raised its policy rate to 2.5% earlier this month and has signaled more hikes are likely coming. Tuesday's data is expected to show inflation jumped to 4% in the second quarter, up sharply from 3.1% previously, with surging fuel prices doing much of that work.

But the number everyone's actually going to scrutinize closely is non-tradeable inflation, specifically, domestic price pressures rather than costs directly imported from global fuel markets. That distinction matters enormously for what the RBNZ does next.

Jarrod Kerr, chief economist at Kiwibank, laid out the stakes clearly: "A lower inflation print, specifically a lower non-tradable inflation print, will give the Reserve Bank more room to breathe. And this might mean we only see one more rate hike this year instead of two." Flip that around, and a higher print "will give them steam to hike to 3% by the end of the year."

Right now, markets are pricing in a 78% probability of another RBNZ rate hike in September, with rates ultimately peaking around 3.5% by mid next year. Tuesday's data could meaningfully shift those odds in either direction.

Australia's facing a similar bind

The oil price spike is having a parallel effect on rate expectations for the Reserve Bank of Australia. Markets are now pricing in a greater probability of another RBA hike this year, following three previous moves that brought the cash rate to 4.35%. Another tightening move by December is currently priced at 76%.

That shifting rate outlook is part of what helped the Aussie dollar rebound 0.2% against the kiwi on Monday, to NZ$1.1958, bouncing back from a nearly four-month low of NZ$1.1901 hit just before.

There's another data point on deck that matters here too: Australian jobs figures are due Thursday, with forecasts centered on a rise of 15,000 jobs in June and unemployment holding steady at 4.4%. If that labor market data comes in unexpectedly weak, it would likely cause markets to scale back their expectations for another RBA hike adding yet another variable into an already complicated policy picture.

This is a clean example of how a geopolitical conflict thousands of miles away ends up directly shaping monetary policy decisions in Wellington and Canberra. Oil prices don't stay contained to the region where the conflict is happening they flow straight into inflation data everywhere, and inflation data is exactly what central banks use to decide whether to raise rates.

Both the RBNZ and RBA now find themselves trying to parse how much of their inflation pressure is a temporary, conflict-driven fuel price spike versus a more durable, domestic price problem that actually requires sustained rate hikes to address. Get that distinction wrong in either direction, hiking too aggressively in response to what turns out to be temporary oil-driven inflation, or holding back too long while domestic prices genuinely accelerate and there are real costs either way.

Tuesday's New Zealand inflation data and Thursday's Australian jobs report are both going to be closely watched precisely because they're the clearest available signals for untangling that distinction, right as the Middle East conflict shows no signs of cooling down.