The New Zealand dollar weakened against a basket of major currencies during Asian trading on Thursday, pulling back from a four-week high against its US counterpart and heading for its first loss in three sessions as investors locked in recent gains. The move also coincided with a modest recovery in the US dollar amid ongoing military strikes between the United States and Iran.

The recent rally in oil prices has increased inflationary pressure on policymakers at the Reserve Bank of New Zealand, reinforcing expectations that the central bank could raise interest rates at its September meeting.

The Price

• The New Zealand dollar fell about 0.3% against the US dollar to 0.5834, from the day's opening level of 0.5850, after reaching an intraday high of 0.5854.

• The kiwi rose 0.65% against the US dollar on Wednesday, marking its second consecutive daily gain and reaching a four-week high of 58.63 US cents.

• The US dollar remained under pressure against major currencies following another round of weaker-than-expected US inflation data, which further reduced expectations of a Federal Reserve interest rate hike this year.

US dollar

The US Dollar Index rose 0.1% on Thursday as the greenback attempted to recover from a one-month low against a basket of major currencies.

Demand for the US dollar as a safe-haven asset increased as military exchanges between the United States and Iran continued to escalate, while shipping activity through the Strait of Hormuz remained subdued, heightening concerns over potential disruptions to global oil supplies.

Iran conflict updates

• The United States launched a new wave of airstrikes targeting Iranian coastal defense positions and missile launch sites.

• Iran declared that the current confrontation represents an "existential war" and pledged to continue responding to US military operations while warning that it could expand measures affecting regional energy exports.

• The US naval fleet, consisting of 20 warships and hundreds of military aircraft in the region, continues to intercept vessels traveling to and from Iranian ports.

• Traffic through the Strait of Hormuz declined to just seven vessels, down from 13 the previous day, with supertankers and LNG carriers completely absent from the shipping lane.

• US President Donald Trump said Iran "wants to reach a settlement," but stressed that any return to negotiations would require a change in Tehran's behavior.

• Iran, meanwhile, insists it will not return to any previous understandings as long as US military operations continue.

New Zealand interest rates

• Following its latest meeting, the Reserve Bank of New Zealand said that further interest rate increases may be required, although the timing and magnitude of any future moves will depend on incoming economic data, inflation trends, and the strength of economic activity.

• Markets continue to price in a greater than 90% probability of a 25-basis-point interest rate increase at the September policy meeting.

• Investors will closely monitor upcoming New Zealand economic data, including inflation, employment, and GDP figures, for further clues on the policy outlook.

US stocks closed higher on Wednesday after weaker-than-expected inflation data and another round of strong corporate earnings at the start of the second-quarter reporting season boosted investor confidence.

The three major US indexes ended the session with modest gains despite continued weakness in semiconductor stocks, while consumer retail and travel & leisure shares led the market higher.

Bank and technology stocks lead gains as PayPal jumps on takeover report

PayPal surged 17.2% after Reuters reported that Stripe and private equity firm Advent International had submitted a joint bid to acquire the company for $60.50 per share, representing a premium of about 28% over Tuesday's closing price.

Meanwhile, the US banking earnings season continued to deliver positive surprises, with both BlackRock and Morgan Stanley reporting quarterly results that exceeded market expectations.

BlackRock shares climbed 6.6%, while Morgan Stanley finished the session 0.4% higher.

"Everything coming out of the banks looks positive, and I wouldn't be surprised if we see another exceptional quarter," said Mike Dickson, Head of Research and Quantitative Strategies at Horizon Investments in Charlotte, North Carolina.

According to the latest LSEG data, analysts expect S&P 500 companies to post year-over-year earnings growth of 23.7% in the second quarter.

At the close:

The Dow Jones Industrial Average rose 150.91 points, or 0.29%, to 52,659.18.

The S&P 500 gained 28.83 points, or 0.38%, to finish at 7,572.42, while the Nasdaq Composite advanced 162.22 points, or 0.62%, to close at 26,269.23.

Among the 11 major S&P 500 sectors, communication services posted the strongest gains, while utilities were the weakest performer.

Softer inflation boosts optimism, but geopolitical risks remain

Markets also received support after the Producer Price Index (PPI) came in below expectations for a second consecutive day, as Federal Reserve Chair Kevin Warsh continued his second day of testimony before the Senate Banking Committee.

Combined with Tuesday's Consumer Price Index (CPI) report, the PPI data suggested inflation continued to ease last month, although it remained elevated due to the economic impact of the conflict involving the United States, Israel, and Iran. The data reduced pressure on the Federal Reserve to raise interest rates in the near term.

"My biggest concern before this week was that inflation would come in above 3.8%, but instead it slowed to 3.5%. That gives the Federal Reserve room to keep interest rates unchanged or even cut them later this year, which is positive news for markets," said Lauren Goodwin, Chief Market Strategist at Founders 100 ETF in Dallas.

According to CME FedWatch data, markets are now pricing in just a 10.2% probability of a 25-basis-point rate hike at the conclusion of the Federal Reserve's meeting later this month, down from 31% a week earlier.

Despite the encouraging inflation figures, analysts noted that the data reflected last month's conditions, when investors still believed a diplomatic resolution to the Middle East conflict was within reach.

That optimism has faded in recent days as renewed US-Iran airstrikes and growing tensions over control of the Strait of Hormuz have raised concerns that higher energy prices could reignite inflationary pressures.

Separately, Federal Reserve Governor Lisa Cook said she is "prepared to act" if inflation fails to continue moderating in the months ahead.

Market breadth remained positive, with advancing stocks outnumbering decliners by 1.5-to-1 on the New York Stock Exchange, where 269 stocks hit new 52-week highs and 124 reached new lows.

On the Nasdaq, 2,647 stocks advanced while 2,107 declined. Total trading volume across US exchanges reached 16.27 billion shares, compared with the 20-session average of 21.40 billion.

Oil prices were little changed on Wednesday as US forces continued a fresh wave of military strikes against Iranian targets while Washington reinstated a naval blockade on Iranian ports near the Strait of Hormuz.

US West Texas Intermediate (WTI) crude futures for August delivery slipped 10 cents, or 0.1%, to $79.24 per barrel.

Global benchmark Brent crude futures for September delivery fell 13 cents to $84.60 per barrel.

Escalating tensions near the Strait of Hormuz fuel supply concerns and raise the prospect of $100 oil

In a statement released late Tuesday US time, US Central Command (CENTCOM) said it had carried out a new wave of strikes targeting dozens of military assets near the Strait of Hormuz and along Iran's coastline in an operation that lasted seven hours.

The command said the attacks involved fighter jets, drones, and naval vessels targeting missile and drone facilities, naval assets, and coastal defense systems in an effort to weaken Iran's ability to threaten commercial shipping.

The operation came just hours after US forces resumed enforcing a naval blockade on vessels traveling to and from Iranian ports.

In a subsequent post on social media, CENTCOM Commander Gen. Brad Cooper said Iran had "deliberately" targeted civilians and attacked seven commercial vessels over the past week, resulting in around 12 crew members being killed, injured, or reported missing.

Saul Kavonic, Head of Energy Research at MST Marquee, said the latest escalation confirms that expectations for a rapid reopening of the Strait of Hormuz were premature.

"The renewed fighting and the reinstated naval blockade have pushed the conflict back onto an escalatory path," he said in comments to CNBC via email.

He added that oil prices could retest the $100-per-barrel level if the current level of military activity continues for several weeks and could move even higher if attacks expand to include energy infrastructure across the region.

The ceasefire between the United States and Iran, which was intended to ensure the permanent reopening of the Strait of Hormuz, has begun to fall apart.

US forces reinstated a naval blockade on Iranian ports this week and struck dozens of targets along Iran's coastline, while Tehran responded by attacking oil tankers attempting to pass through the strait without its approval.

Brent crude, which had fallen to the mid-$70s per barrel while the June peace agreement was in effect, climbed back above $85 following the latest developments, reaching its highest level since the ceasefire was signed.

This is the second time this year that markets have been forced to price in the possibility of a complete halt to roughly one-fifth of the world's seaborne oil trade.

During the first episode in February, some analysts warned that oil prices could reach $200 a barrel, but those forecasts never materialized. Much of the reason lies not in developments in the Gulf, but in the measures Beijing had already put in place. Those same defenses are now being tested again.

Five layers of protection built by Beijing against oil shocks

First: Consumers are replacing private cars with taxis

In China's largest cities, taking a taxi or using a ride-hailing service is often cheaper than driving a private vehicle, even as gasoline prices continue to rise week after week.

China recorded 3.05 billion taxi and ride-hailing trips in May, up 6% from a year earlier, although the increase was not directly caused by the war.

A weak labor market pushed large numbers of new drivers into ride-hailing work to supplement their incomes, while the widespread availability of low-cost electric vehicles made it easier to enter the sector. As a result, ride fares continued to decline even as fuel costs rose for private motorists.

A part-time driver in Beijing identified only by his surname, Li, told Reuters that his fares had fallen by between 10% and 15% since he began working six months ago.

"Competition is intense," he said.

Meanwhile, a 45-year-old gasoline-car owner identified by her surname, Yang, said she increasingly prefers taxis when fuel prices rise because they allow her to avoid the inconvenience of finding parking and the cost of filling her tank.

The impact of this trend is amplified by the fact that much of China's taxi fleet is already electric.

About half of the country's 1.3 million taxis are battery-powered, while the share approaches 100% in the largest Chinese cities.

The number of non-fossil-fuel vehicles operating on Didi's platform, including electric and hybrid cars, rose to 8 million last year and accounted for three-quarters of all distance traveled through the app.

As a result, China's gasoline consumption fell 10% year-over-year in May, while diesel demand declined 14%, even as road freight traffic rose 2% and traffic volumes reached record levels during the May holiday.

Dazong Liu of the Institute for Transportation and Development Policy said demand for mobility is still rising, but is gradually shifting from private cars toward taxis and metro systems.

Second: A massive oil stockpile bought China valuable time

China's largest and most deliberate move began long before the fighting erupted.

For more than a year, Chinese refiners purchased more crude oil than they immediately needed, taking advantage of stable prices and deep discounts on sanctioned Russian and Iranian barrels avoided by most other buyers.

No precise official figures are available outside Beijing, but analysts estimated that China had accumulated around 1 billion barrels in commercial and strategic reserves by the time the war began in February.

China then began drawing down those stockpiles.

Crude oil imports fell from 11.39 million barrels per day in February to 6.36 million barrels per day in May, a decline of more than 44%, while refineries continued operating at near-normal rates.

The entire gap was covered by inventories, with the International Energy Agency estimating that China withdrew 41 million barrels from storage in June alone.

Yaniv Shah of Rystad Energy told CNN that the stockpiling had initially placed a "floor under prices," but later became a genuine buffer against the supply shock after the war began.

The question is whether China can repeat that performance.

Inventories that have already been consumed do not replenish themselves, while JPMorgan analysts are debating whether the drop in Chinese demand is temporary or reflects a lasting change in the country's oil needs.

Third: Pipelines beyond the reach of the conflict

Two decades of investment in pipelines through Russia and Central Asia have reduced China's dependence on the Strait of Hormuz.

According to Rush Doshi, Director of the China Strategy Initiative at the Council on Foreign Relations, the strait now carries only 40% to 50% of China's seaborne oil imports.

He said Beijing has "used the past 20 years to reduce part of its dependence on seaborne oil."

Oil delivered through overland pipelines cannot be intercepted by Iran's Revolutionary Guard, does not require war-risk insurance, and is not exposed to naval mines.

The same logic applies to Russian gas transported through the Power of Siberia pipeline, although capacity is not unlimited.

The pipelines are already operating close to full capacity, while Russia lacks enough tankers to compensate for any major shortfall through maritime shipments.

OCBC analysts said in March that this diversification makes China less vulnerable than its Asian neighbors to a prolonged closure of the Strait of Hormuz, a claim now undergoing another real-world test as military exchanges continue.

Fourth: China is in no hurry to buy Iranian oil

In practice, Iranian tankers are now the only vessels still guaranteed passage through the Strait of Hormuz, and most of that oil is headed to China, which purchases around 90% of Iran's crude exports.

Even so, Chinese refiners do not appear desperate for those cargoes.

When Iranian shipments accumulated during the brief ceasefire, Chinese buyers chose to stay away rather than compete for them.

Private refiner Shenghong Petrochemical, for example, purchased around 12 million barrels of Iraqi, Emirati, and Saudi crude for July delivery after Gulf producers lowered prices to attract buyers.

China's Iranian crude imports are expected to fall to around 556,000 barrels per day in July, the lowest level since early 2023, while between 30 million and 34.5 million barrels of Iranian oil remain stored aboard floating tankers without buyers.

Natasha Kaneva, an analyst at JPMorgan, wrote in a client note this month that barrels leaving the Strait of Hormuz are "increasingly finding no destination other than China, but China is not buying."

When the world's largest crude importer can afford to be this selective, it is not simply accepting the market price. It is helping to set it.

Fifth: The wider transition is already underway

New-energy vehicles now account for one out of every two new cars sold in China.

Exports of clean technologies, including solar panels, batteries, and electric vehicles, also reached a record in March, just as fighting in Iran began.

Beijing aims to raise the share of non-fossil energy to 25% of total energy consumption by 2030, up from around 22% last year, regardless of whether the war continues.

JPMorgan analysts said earlier this month that the conflict may simply have accelerated behavioral changes that were already underway, making China's dependence on oil weaker than markets had assumed.

The key question is whether that trend will continue through another round of military strikes and naval blockades, which is now the main issue investors are watching after the latest rise in oil prices.

Daan Struyven of Goldman Sachs has raised the possibility that a meaningful share of the decline in China's oil imports, perhaps around one-tenth of the drop, may never return, regardless of whether another ceasefire is reached.

If that proves correct, China, which has quietly built five layers of protection over many years, may ultimately need less of the world's oil than previously expected, not just temporarily, but permanently.