Middle East Risks And Dollar Support
Energy supply worries added to inflation pressure, with the effective closure of the Strait of Hormuz lifting oil prices. Higher oil raised expectations that major central banks, including the Federal Reserve, will keep policy hawkish, pushing US Treasury yields up. In Australia, remarks from RBA Assistant Governor Christopher Kent did not lift the currency. He referred to inflation risks from higher energy prices and the need to keep policy restrictive, but the market response was limited. Commerzbank reported a stagflation backdrop, citing weaker growth, falling consumer confidence, and Services PMI slipping into contraction. Markets still priced about a 54% chance of a rate rise in May. Rabobank said Australia’s net energy exporter position could support trade conditions, projecting 0.71 in 3–6 months and 0.72 in 12 months. Near term, safe-haven demand, higher US yields, and few local supports kept pressure on the pair. This analysis from early 2020 captured a moment when safe-haven demand for the US dollar was high due to tensions in the Middle East. The Australian dollar was under pressure, trading near 0.6920, with markets focused on hawkish central banks. It reflected a world worried about geopolitical conflict and energy-driven inflation.Shifting Macro Backdrop
Looking back on that period from the perspective of 2025, we saw how the global pandemic completely changed the narrative within weeks of this analysis being written. The massive coordinated central bank easing that followed dwarfed the geopolitical concerns of the day. This shift propelled the AUD/USD well above the 0.72 level later in 2020 as risk appetite returned. Now, in late March 2026, the environment is defined by slowing global growth rather than sharp geopolitical risk. Australian inflation has cooled to 3.2% in the latest quarterly data, allowing the RBA to maintain a neutral policy stance. Recent figures show the unemployment rate has ticked up to 4.3%, giving the central bank little reason to consider hikes. The US Federal Reserve is in a similar position, with recent data showing annual core PCE inflation at 2.8%, much closer to its target. Consequently, the AUD/USD is trading in a relatively tight range around 0.6650, a level it has struggled to break away from for months. This lack of clear direction calls for strategies that can profit from sideways movement. Given this low-volatility environment, traders should consider selling options to collect premium. Selling an AUD/USD iron condor with strikes set outside the recent 0.65 to 0.68 trading range could be an effective strategy for the coming weeks. This approach benefits from time decay and the pair remaining range-bound. Alternatively, for those with a slightly bearish bias, a bear call spread would offer a defined-risk way to bet against a significant rally. For example, one might sell the 0.6750 call and buy the 0.6850 call expiring in late April. This profits if the pair stays below the short strike price by expiration. Create your live VT Markets account and start trading now.
Start trading now – Click here to create your real VT Markets account
