Aussie Steady Near Peak
The Australian dollar held around US$0.708 in Asia (March 13) after a recent correction, but remained near a three-year high and on track for a sharp weekly gain. The AUD's resilience came despite worsening global sentiment due to the escalation of the Iranian conflict and growing concerns about energy supply disruptions.
Markets remained cautious after Iran stepped up attacks on oil and transport facilities in the Middle East, while Iran's new supreme leader asserted that the Strait of Hormuz remains "effectively closed." The surge in oil prices due to supply risks has added to global inflationary pressures while heightening concerns about slowing growth, a combination that typically drives risk-off flows.
However, for the AUD, domestic factors are temporarily dominant: expectations of RBA monetary policy tightening. Markets are pricing in a 25 bps rate hike to 4.10% at the March 17 meeting, rising to around 78%, from below 30% at the start of the week. One additional rate hike is fully priced in for August, with a total of around 60 bps of tightening projected for the year.
The main transmission channel is cost-of-living inflation, which could potentially worsen due to rising fuel prices, increasing the urgency of RBA policy to maintain inflation. As long as the repricing of Australia's interest rate path continues, the AUD is likely to be more protected from risk aversion pressures than lower-yielding currencies.
Going forward, the direction of the AUD/USD will be sensitive to two variables: confirmation of the RBA's signal next week and oil price dynamics related to Hormuz. Sharp changes in geopolitical risk—which impact energy, inflation, and risk appetite—have the potential to shift the balance between AUD carry/yield support and global risk-off pressures. (asd)
Source: Newsmaker.id
