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Bank of America say to target New Zealand downside as the conflict in the Middle East continues.

A new strategy note from the bank says "NZD is our preferred short" on shockwaves from the Gulf.

Strategist Adarsh Sinha says the NZD short works if equities are down and oil is up.

"High-beat FX is likely to underperform if oil prices spike and equities fall. NZD is our preferred short," he says. "New Zealand's import dependence has increased, especially after closure of MP refinery in 2022."

The Marsden Point Oil Refinery closed in 2022 after 58 years, with the site being transformed into a refined fuel import terminal.

The conditions for the NZ dollar short are certainly in plain sight following the start of the conflict in the Middle East: equity markets across the world have seen significant drawdowns over the past two days in response to surging oil prices.

Brent crude has risen 18% since Friday, which will impose significant costs on oil importing nations, such as New Zealand.

New Zealand already imports more than it exports, leaving it with a Balance of Payments in deficit, which analysts consider to be a source of vulnerability for the NZD.

That deficit "makes NZD vulnerable," says Sinha.

A risk to the strategy call is if the equity drawdown is short-lived, as has often been the case with previous geopolitical risk-off events.