Risk appetite weakened on Wednesday as markets tracked Middle East developments and waited for the Federal Reserve to release minutes from the June Federal Open Market Committee meeting. Oil drove much of the tone: West Texas Intermediate rose nearly 5% on Tuesday, then added about 0.8% to trade around $72.60, after reports that Iran fired at three commercial vessels near the Strait of Hormuz and the US carried out strikes on Iranian air defences and drone launch sites. The US also revoked a licence allowing Iran to sell crude oil until August 21 and reimposed sanctions. The US Dollar Index consolidated near 101.00 after rising about 0.3% on Tuesday, while US stock index futures were down about 0.2% in the European morning.<\/p>\n
In Asia, the Reserve Bank of New Zealand lifted the Official Cash Rate by 25 basis points to 2.50% in a unanimous decision, its first hike in over three years since April 2023, and referenced a neutral-rate range of 2.5%\u20133.5%. NZD\/USD traded above 0.5700, up more than 0.5% on the day. Elsewhere, EUR\/USD held above 1.1400 after a 0.3% Tuesday drop, and GBP\/USD fell more than 0.2%, ending a nine-day winning streak but staying above 1.3350; USD\/JPY remained range-bound above 162.00. Gold steadied above $4,100 after two consecutive daily declines.<\/p>\n
We are seeing a significant spike in oil prices due to the conflict in the Strait of Hormuz, and this is where immediate opportunities lie. Given the new US sanctions and military actions, we should consider buying call options on WTI crude futures to profit from further price increases. Historically, disruptions in this chokepoint, which handles nearly a third of the world’s seaborne oil trade, lead to sustained volatility and higher prices.<\/p>\n
The broader market is shifting to a “risk-off” mood, which means we must protect our equity positions. We are looking at buying protective put options on the S&P 500, as stock futures are already declining. The CBOE Volatility Index (VIX), often called the fear gauge, has jumped over 18% in the past two days, and past geopolitical shocks suggest it could surge higher if tensions escalate.<\/p>\n
In the currency markets, the divergence between central banks is creating clear trading signals. The Reserve Bank of New Zealand’s rate hike makes the Kiwi dollar a strong candidate for further gains, so we are looking at call options on NZD\/USD. This view is strengthened as we await the Fed’s meeting minutes, which may show a more cautious tone compared to the RBNZ’s decisive action.<\/p>\n
With gold stabilizing above a very high price of $4,100, its role as a primary safe-haven asset is confirmed. We believe this is not just a temporary spike, as global ETF holdings in gold have increased by over 2 million ounces in the past month. Therefore, using call spreads on gold futures or ETFs could provide a cost-effective way to bet on further upside while managing risk in this uncertain environment.<\/p>\n\n\n\n