Australian Dollar faces heat from Iran conflicts-led risk-off mood
- The Australian Dollar underperforms its major peers as investors shift to safe-haven assets.
- IEA’s Birol warns that the Iran crisis is worse than the two oil crises of the 1970s combined.
- The RBA is expected to deliver one more interest rate hike by the end of August.
The Australian Dollar underperforms its major currency peers, is down 0.7% to near 0.6970 against the US Dollar (USD) in the early European trade on Monday. The AUD/USD pair plummets as the Australian Dollar (AUD) underperforms amid a heightened risk-off market mood, in the wake of escalating conflicts in the Middle East, which involve the United States (US), Iran, and Israel.
Australian Dollar Price Today
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the weakest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.30% | 0.26% | 0.18% | -0.00% | 0.82% | 0.62% | 0.24% | |
| EUR | -0.30% | -0.03% | -0.07% | -0.30% | 0.65% | 0.31% | -0.06% | |
| GBP | -0.26% | 0.03% | -0.08% | -0.28% | 0.69% | 0.34% | -0.04% | |
| JPY | -0.18% | 0.07% | 0.08% | -0.17% | 0.64% | 0.36% | 0.05% | |
| CAD | 0.00% | 0.30% | 0.28% | 0.17% | 0.80% | 0.48% | 0.19% | |
| AUD | -0.82% | -0.65% | -0.69% | -0.64% | -0.80% | -0.33% | -0.58% | |
| NZD | -0.62% | -0.31% | -0.34% | -0.36% | -0.48% | 0.33% | -0.34% | |
| CHF | -0.24% | 0.06% | 0.04% | -0.05% | -0.19% | 0.58% | 0.34% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
At the press time, S&P 500 futures are down 0.33% to near 6,487, extending its downfall after a 1.4% decline on Friday, indicating a dismal market sentiment. Meanwhile, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.2% higher to near 99.70.
Middle East conflicts are resulting in fears of energy shortage and de-anchoring inflation expectations across the world. International Energy Agency (IEA) chief Fatih Birol said earlier in the day that “dozens of energy assets in the Middle East had been damaged in the war”. Birol added, “This crisis is worse than the two oil crises of the 1970s combined.”
On the monetary policy front, the Reserve Bank of Australia (RBA) raised its Official Cash Rate (OCR) by 25 basis points (bps) to 4.1%, as expected, and warned that inflationary pressures could accelerate further amid the energy crisis.
Markets imply a 50-50 chance the Australian central bank will hike again at its next meeting in May, and rates of 4.35% are fully priced by August, Reuters reports.
Meanwhile, the US Dollar trades firm amid risk-off sentiment, and the expectation that the Federal Reserve (Fed) will hold interest rates at their current level this year. Speculation that the Fed will adopt an “extended pause” stance is prompted by rising inflation projections amid higher oil prices.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
Author
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
