The Middle East “Black Swan”: Why the Greenback is Choking the Aussie
The main reason behind the recent 0.9% slide in AUD/USD has nothing to do with economics – it’s all down to geopolitics. Coordinated US and Israeli strikes against Iran, which resulted in the reported death of Iran’s Supreme Leader, have sent shockwaves through the financial system like a thunderbolt.
As a result investors are rapidly abandoning riskier assets like the Australian Dollar and snapping up US Dollars. With the Strait of Hormuz closed off since March 3rd, Brent Crude has surged by 30% this year and is now trading at $80.
Although Australia exports energy – and higher global energy prices will inevitably impact the global economy – as an exporter this actually puts even more pressure on the Australian Dollar.
The US Dollar’s Rise:
- Safe-Haven Dominance: The DXY (US Dollar Index) is holding up near a six-week high.
- Warsh Nomination: As Kevin Warsh prepares to take the helm at the Fed as Chair – promising a “hawkish but stable” hand on the wheel – confidence in the USD is on the rise.
RBA’s Michele Bullock: March Rate Hike Possible
While the world’s attention is focused on the Middle East, the Reserve Bank of Australia delivered a surprise to the market. Governor Michele Bullock announced that the March 17 meeting may just see a 25-basis-point rate hike.
Even though the Australian Dollar has taken a hit, the economy’s still doing okay. Q4 GDP came in at 2.6% year-over-year, beating the expected 2.1%. With inflation at 3.8%, the RBA is showing that it’s going to act independently of the global market’s mood swings.
“The board will be actively looking to see if they need to move more quickly,” Bullock warned. “And I’d advise people not to assume we only meet every quarter.”
