The ongoing US-Iran conflict and the closure of the Strait of Hormuz have exerted significant influence across global financial markets, with risk sentiment and geopolitical uncertainty driving notable shifts in currency, commodity, and investor behavior. Despite robust US jobs data, the US Dollar (USD) has weakened, as optimism over a potential US-Iran deal and surging US equities have bolstered risk appetite, offsetting data support for the Dollar [1]. However, renewed tensions and deteriorating diplomatic relations have prompted investors to pivot toward safe-haven assets, temporarily strengthening the USD against more sensitive currencies like the New Zealand Dollar (NZD), which traded around 0.5940 after extending losses for a second day [2]. The Michigan Consumer Sentiment index fell to a new record low, attributed to cost of living concerns and softening nominal wage growth, suggesting continued weak growth in real incomes and potential for Federal Reserve (Fed) easing later in the year [1].
BNY strategists highlight that resilient US macro data and likely elevated inflation prints make it harder to justify Fed rate cuts in 2026, with their base case assuming two cuts in Q4 contingent on a reopening of the Strait of Hormuz and a weaker labor market. April's establishment survey showed an increase of 115,000 jobs, while the household survey indicated a rise of 134,000 unemployed persons and a decline of 226,000 employed people [3]. The path to Fed easing remains conditional, with dissents in the April FOMC focused on statement language rather than rate policy, signaling a desire for more explicit expression of two-way risk to rates [3].
Oil markets have reacted modestly to renewed US-Iran tensions, with Brent holding near $105 and WTI below $100. Brent was up only 2.88% to $104.21/bbl following President Trump's rejection of Iranian peace terms as "totally unacceptable" [4]. The Strait of Hormuz remains functionally closed, impacting global energy and fertilizer markets. US control over energy supply chains has allowed it to pressure China, as evidenced by sharply lower Chinese crude oil import volumes despite higher values and April PPI figures underscoring the Iran war's effects on China's industrial economy [4].
Gold has dropped about 12% since the Iran conflict began, despite its safe-haven reputation. ING attributes this to macro headwinds from higher oil prices, a stronger USD, and elevated real yields. The Federal Reserve left rates unchanged in April, with Chair Powell maintaining a cautious tone. Inflation has re-accelerated since the war began, weakening the case for near-term easing. ING projects gold prices to reach $5,000/oz by year-end, supported by central bank demand and improving ETF flows, but warns that a breakdown in peace talks and prolonged energy shocks could keep the Fed on hold and limit gold's recovery [5].
Forward-looking statements from analysts suggest that Fed easing is likely only if the Strait of Hormuz reopens and the labor market weakens, which could occur by the end of Q3 2026 [3]. ING remains constructive on gold but notes that the stalling of peace talks adds near-term uncertainty, with a durable resolution seen as the key catalyst for a sustained gold recovery [5]. The New Zealand Dollar may receive support if the Reserve Bank of New Zealand maintains a cautious stance or considers tightening to bring inflation back to the 2% midpoint [2].
CONCLUSION
The US-Iran conflict and closure of the Strait of Hormuz have created significant uncertainty, impacting currencies, commodities, and central bank policy outlooks. While the US Dollar has weakened on risk appetite, renewed tensions have temporarily strengthened it against sensitive currencies. Oil and gold markets remain volatile, with analysts emphasizing that a resolution to the conflict and reopening of the Strait are critical for a shift in Fed policy and broader market recovery.