During early trading in Asia on Monday, the AUD/USD exchange rate dropped to about 0.6940. Ongoing tensions in the Middle East are impacting risk assets, including the US dollar. Traders are also gearing up for the release of U.S. Consumer Price Index (CPI) inflation data, which is expected on Tuesday.
According to Bloomberg, the US Central Command (CENTCOM) initiated a new operation against Iran over the weekend, aiming to diminish its capability to attack civilian vessels in the Strait of Hormuz. In response, the Islamic Revolutionary Guards Corps (IRGC) launched drone and missile strikes against US allies throughout the Middle East, including Kuwait, Jordan, and Qatar.
On a somewhat positive note, hawkish remarks from the Reserve Bank of Australia (RBA) could mitigate some of the losses for the Australian dollar. Reuters reported that RBA assistant governor Sarah Hunter indicated last week that the board is prepared to act as needed to keep inflation on track, suggesting that some tightening might be required if inflation expectations rise due to the oil crisis.
This year, Australia’s central bank has previously raised interest rates by 25 basis points on three occasions, bringing the official cash rate (OCR) to 4.35%. Current ASX 30-day interbank cash rate futures reveal that the market anticipates only a 19% chance for a rate hike to 4.60% in the upcoming August meeting.
