Oil climbs to near six-week high as US-Iran hostilities persist

Key market developments:

• Oil climbed to a near six-week peak as the conflict between Washington and Tehran showed no signs of de-escalation.
• Kuwait's air defense systems intercepted Iranian ballistic missiles and drones during the most recent exchange.
• On September 1, US Central Command said it carried out strikes targeting IRGC air defense, radar, naval and mine-laying sites in Iran, in response to attempted attacks on shipping in the Strait of Hormuz and US personnel.
• For the first time, the US targeted two Iranian state-owned tankers under a newly approved "tanker for tanker" policy, Axios reported, as part of a wave that struck around 100 targets, with Iran's counterattack largely blocked.
• According to Axios, a US official stated that the strikes reduced Iran's ability to attack and purchased at least a month of reduced threat levels for commercial shipping.
• President Trump stated he is not trying to push Iran into talks, describing the Iranian economy as collapsing under the existing pressure.
• Bank of Japan Governor Ueda, Finance Minister Katayama, and board member Takata all indicated they are open to additional rate increases, with Takata cautioning that energy prices pose an upside risk to inflation and that Japan's neutral rate might exceed current market expectations.
• The dollar-yen pair climbed as the yen lost ground, with the greenback strengthening against other major currencies.
• As anticipated, the Reserve Bank of New Zealand raised its cash rate, and its accompanying statement indicated more increases are likely if energy-driven inflation continues. The New Zealand dollar declined and lagged other currencies in the session.
• Australia's second-quarter GDP increased by more than forecast, keeping attention on the possibility of additional tightening from the Reserve Bank of Australia.
• Stocks in Japan and South Korea dropped steeply, with analysts pointing to higher oil prices and bond yields as the main factors weighing on market mood.

On Wednesday, oil reached a near six-week high as hostilities between the US and Iran continued with no ceasefire in sight. Kuwait's air defense systems intercepted Iranian ballistic missiles and drones in the latest exchange, highlighting how far the conflict has expanded beyond its initial flashpoints. US Central Command said its forces attacked IRGC air defense, radar, naval and mine-laying sites in Iran on September 1, stating the action was a response to attempted attacks on Strait of Hormuz shipping and US personnel in the area.

Axios reported that the strikes were the first time the US had targeted Iranian state-owned tankers under a newly approved tanker for tanker policy, hitting two such vessels in a broader operation that struck roughly 100 targets. Iran's counterattack was mostly blocked, officials said. Barak Ravid of Axios quoted a senior US official as stating that the latest strikes degraded Iran's ability to attack in the strait and secured at least a month of reduced threat levels for commercial shipping.

In a separate statement, President Trump said he is not trying to push Iran into talks, and characterized the current pressure campaign as benefiting Washington because of what he called Iran's collapsing economy. The remarks indicate the administration sees no pressing need to pursue negotiations as military and economic pressure on Tehran remains.

Three Japanese policymakers reinforced the Bank of Japan's hawkish stance. Governor Ueda stated that the BOJ wants to continue raising rates because conditions remain accommodative, but emphasized the need to carefully consider the cumulative effect of the five hikes already made. Finance Minister Katayama said Japan is watching debt markets with great urgency after a rise in JGB yields, while board member Takata, a well-known hawk, warned that higher overseas rates could push Japan's neutral rate above current market expectations and noted energy prices as a risk for inflation exceeding the target. The yen weakened against the dollar, pushing USD/JPY higher, as the greenback strengthened across major currencies.

As expected, the Reserve Bank of New Zealand increased its cash rate, and its statement suggested that additional hikes are still probable if energy-driven inflation pressures keep firming. The New Zealand dollar declined on the news and lagged other major currencies during the session.

Australia's Q2 GDP increased more than markets forecast, keeping investors focused on the possibility of further RBA tightening in coming months. Regional equity markets reflected the growing pressure from these events, with Japanese and South Korean stocks dropping steeply as analysts cited higher oil prices and bond yields as the main reasons for the selloff.