World crude oil prices continued to rise after the United States launched its latest attack on Iran, raising concerns that tensions in the Middle East will further disrupt global energy supplies.
Brent Rises for Four Consecutive Days
Brent oil prices rose for the fourth consecutive day, exceeding the USD85 level per barrel. This increase coincided with a positive opening for Australian and New Zealand government bonds, following the upward trend in US Treasury Bonds after US producer inflation (PPI) data for June was found to be lower than expected.
The development prompted investors to further reduce expectations for a Federal Reserve (Fed) interest rate hike this year. Indicators of US dollar strength stabilized after recording losses for two consecutive days.
Energy Markets Return to Main Market Focus
While this week's inflation report eased concerns about a Fed interest rate hike in the near future, the escalation of conflict in the Persian Gulf revived concerns about energy supplies from the region.
We expect no immediate pressure on the Fed for now, but oil remains the key driver in the longer term. The energy sector managed to salvage the situation in June, but that could be history if the Strait of Hormuz is not reopened soon.
Interim Peace Deal Nears Collapse
The interim peace deal between the United States and Iran, signed about a month ago, has nearly completely collapsed this week, as the two sides dispute control of the crucial strait. The Strait of Hormuz is a key energy export route for Saudi Arabia, Qatar, the United Arab Emirates and several other countries in the region.
The latest attack comes on the heels of President Donald Trump's promise to intensify bombing until Tehran stops attacking ships in the Strait of Hormuz and agrees to reopen the maritime route.
Market Impact
Aside from energy, investors are also weighing whether strong tech earnings can sustain the momentum of the AI-related rally, as sharp swings in semiconductor stocks highlighted lingering concerns about the sector's high valuations.
For the Ringgit, the combination of rising oil prices and prolonged uncertainty in the Strait of Hormuz could add to the country's energy import cost pressures. While expectations of a Fed rate hike are receding, which usually weakens the Dollar, heightened geopolitical risks could keep the Dollar as the global investor's choice, thus also weighing on regional currencies.
Key Takeaways
Brent oil prices rose for a fourth straight day, above USD85 a barrel, on the back of renewed US attacks on Iran.
Lower-than-expected US producer inflation data prompted traders to reduce bets on a Fed rate hike this year.
The US-Iran interim peace deal is on the verge of collapse following a dispute over control of the Strait of Hormuz.
Trump has vowed to intensify attacks until Iran stops disrupting shipping and reopens the route.
Continued tensions in Hormuz could add to energy cost pressures and weigh on the Ringgit, even as expectations of a Fed rate hike are receding.
As long as the status of the Strait of Hormuz remains uncertain, markets are expected to continue to focus on energy developments over economic data alone, as their direct impact on the cost of living and global business operations is much more significant.
