Australian dollar grappling US-Iran war and March RBA
The Australian dollar starts the week well off its YTD highs of 0.7187, sitting just above the 70‑cent mark, caught in a tug‑of‑war; on one hand, a persistent war‑related risk premium and elevated oil prices are stoking inflation concerns and underpinning a firmer USD; on the other, expectations of an RBA rate hike tomorrow and Australia’s status as a net energy exporter continue to offer material support. While AUD has opened the week modestly lower on the crosses, the broader price action speaks to resilience rather than fragility, with the currency holding its ground amid ongoing volatility.
Australian dollar grappling US-Iran war and March RBA
The Australian dollar starts the week well off its YTD highs of 0.7187, sitting just above the 70‑cent mark, caught in a tug‑of‑war; on one hand, a persistent war‑related risk premium and elevated oil prices are stoking inflation concerns and underpinning a firmer USD; on the other, expectations of an RBA rate hike tomorrow and Australia’s status as a net energy exporter continue to offer material support. While AUD has opened the week modestly lower on the crosses, the broader price action speaks to resilience rather than fragility, with the currency holding its ground amid ongoing volatility.
The week ahead calendar remains action-packed with the RBA and FOMC meetings this week alongside several other central bank meetings. We also receive local Feb jobs data, US Feb PPI and NZ Q4 GDP.
War risks and oil woes continue to squeeze on markets
Despite comments from President Trump early last week, stating that the war would soon be over, Iran seemed to double down on the Strait of Hormuz disruption. In his first statement as Iran's new Supreme Leader, Mojtaba Khamenei called for the Strait to “remain closed” and warned that Iran would continue targeting US bases in the Gulf.
Iranian forces continued attacks on commercial shipping over the week with strikes near the Strait and Gulf ports. Brent and WTI Crude traded to 3-year highs last Monday at USD$119/bbl, before reversing back below towards $80. However, concerns around oil supply shortages saw crude prices steadily increasing towards $100/bbl over the week as nations scrambled towards measures to stabilise supply. The IEA announced on last Wednesday that 32 Member countries had unanimously agreed to make 400mb of oil from their Strategic Petroleum Reserves (SPRs) available to the market to address disruptions in oil markets stemming from the war in the Middle East.
That being said, the US Dept. of Energy confirmed that its 172mn barrels SPR release will not actually be a sale, but an exchange. So, while other countries will sell barrels to the market, including Japan which will has started releasing 80mb of oil into its domestic market, the US will only lend that crude, meaning the total IEA coordinated SPR release is likely to be much smaller than the headline 400mb. In any case, this will offset just 25-35% of the estimated Gulf supply disruption, leaving the real global economy heavily undersupplied from a flow perspective.
Further, Iran’s Foreign Minister Araghchi stated on Sunday that Iran was “open” to countries that want to discuss “safe passage of their vessels”. Two Indian-flagged gas tankers passed through the Strait on Saturday. However, few other countries appear to be making any headway negotiating with Iran.
President Trump stated that the US had commenced talks with Iran and was holding off on a deal until better terms were reached, Iran denied requesting a ceasefire/talks. And if that didn't extinguish ceasefire hopes enough, earlier today US forces carried out strikes on Kharg Island, Iran's primary oil export hub and while oil export facilities were spared, the attack nonetheless urged crude prices higher on Monday's open with prices nearing on $100/bbl. It seems markets may need to strap in for a longer period of conflict.
Risk-off moves leave markes afflicted
Equities have witnessed a choppy grind lower since the onset of the US-Iran war, with the S&P500 falling -1.6% over the last 5 days, touching 5-month lows on Monday.
Metals were also broadly lower over the week, with gold down 2.5% just above $5000/oz. Given the inflationary concerns around higher energy prices, alongside recent hotter US inflation, markets have pared back Fed rate cut expectations significantly, with only -24bp of cuts priced for 2026 (vs -52bp on March 2). Further, US Treasury volatility reached a 9-month high, reflecting the additional war risk premium and fears around higher inflation and oil prices weighing on the haven appeal of bonds.
Increased geopolitical uncertainty and inflation concerns have also played into a stronger USD over the last few weeks, with the DXY crossing above 100.0 on today's open - a level not seen since last November. USD/JPY has opened the week pushing towards the 160.0-handle, nearing on previous BoJ intervention levels.
While AUD/USD remains supported by a more hawkish RBA, increased inflationary concerns are playing into a stronger USD leaving the pair capped at recent highs. Tomorrow's RBA meeting will be decisive for this pair.
AUD has received a level of support from higher energy prices given its status as a net energy importer; AUD/JPY touched fresh multi-month highs of 113.96 last week, and is up 0.2% since last Monday, AUD/EUR reached highs of 0.6199, up 0.67% w/w and AUD/NZD traded up to 1.2121 up 1.15% over the week. While AUD opens the week off last week's highs, it remains a top G10 performer for the week against the USD, second only to CAD (unsurprisingly, another net energy exporter).
The week ahead...
Local calendars are headlined by the March RBA meeting this week (Tue) as well as Feb labour market data (Thur). Meanwhile across the globe several central banks will be meeting this week as well including; the FOMC, BoC, BoJ, ECB and BoE. We also receive US Feb PPI and NZ Q4 GDP.
This week's RBA meeting remains incredibly decisive for AUD/USD as a more hawkish RBA backdrop has been a key pillar of support for the pair this year - cushioning it against the blow of volatility bouts in equities and geopolitical conflicts. Markets are currently pricing +15bp of hikes for tomorrow's meeting, with 22/30 surveyed economists calling for a March hike. A hold this week would likely push out terminal-rate RBA expectations, but we expect them to remain anchored at elevated levels.
The FOMC will also meet this week, with markets expecting rates to remain steady. Despite last week's downwards revisions to US Q4 GDP, core PCE data last week showed that inflation was still running above the Fed's 2% target in January before the outbreak of the US-Iran war. This alongside the rapid surge higher in oil prices in the last few weeks has seen markets pare back rate cut expectations for the year with only 1 cut now priced for 2026.
No doubt, US-Iran developments will rightfully continue to shape market movements amongst the onslaught of data this week.
Monday
- US Mar Empire Manfacturing Survey
- Canada Feb CPI
Tuesday
- RBA Monetary Policy Meeting
- US Feb Conference Board Leding Index
Wednesday
- Australia Feb Westpac Leading Index
- Eurozone Feb CPI (Final)
- US Feb PPI, Jan Factory Orders
- Bank of Canada Monetary Policy Meeting
- FOMC Monetary Policy Meeting
Thursday
- NZ Q4 GDP
- Australia Feb Labour Market Data
- UK Jan ILO Unemployment
- BoJ, ECB & BoE Monetary Policy Meetings
- US Mar Philadelphia Fed Index
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