Australian, NZ dollars sideswiped by fears of lengthy energy crisis

By Wayne Cole

SYDNEY, April 2 (Reuters) - The Australian and New Zealand dollars retreated anew on Thursday as markets scaled back expectations for a quick end to the Middle East conflict, slugging equities and bonds as stagflation fears intensified.

U.S. President Donald Trump told the nation in a televised speech on Wednesday night that the conflict would soon be ending, but also that the U.S. military would continue to pound the country for the next two to three weeks.

He also said the U.S. did not need the Strait of Hormuz and that it would open "naturally" once the conflict ended. The effective closure of the strategically vital waterway has cut off millions of barrels in oil, along with fertilizer, liquefied natural gas and many other products, to global markets.

Brent crude prices jumped 3.7% on worries the strait would remain under the control of Iran, darkening the outlook for the world economy and undermining the growth-exposed Antipodeans.

The Aussie quickly slipped 0.6% to $0.6882 AUD=D3, undoing a 0.4% bounce overnight. Major support lies at the 10-week low of $0.6834, and a break of that would resume the retreat toward $0.6700.

The kiwi dollar fell 0.5% to $0.5720 NZD=D3, having stalled at $0.5777 overnight. A breach of $0.5698 would risk a slide to $0.5580.

Even if the war were to end in a few weeks, the inflationary wave from energy costs is already in the pipeline, with rising costs for petrol, jet fuel, shipping, fertiliser and food.

"We cannot keep assuming the 'best-case scenario' for the conflict, so we have cut our growth forecasts for 2026, but upwardly revised our inflation and rates forecasts," said Josh Williamson, chief Australian economist at Citi.

He sees the economy growing 2.0% this year, instead of 2.6%, while consumer price inflation is seen spiking to 5.5% and core inflation to 3.9%, well above the Reserve Bank of Australia's target band of 2% to 3%.

"With stagflation risks rising, we now forecast another 25bp hike from the RBA in June, in addition to the 25bp hike expected in May," he added. "This takes our terminal to 4.6% in 2026, with rate cuts still expected in 2027."

Markets imply around a 70% chance of a quarter-point increase in the 4.1% cash rate at the RBA's next meeting in May, and a peak at 4.6% by September. 0#AUDIRPR