Risk-off sentiment weighs on the Australian Dollar as geopolitical uncertainty and Fed rate hike expectations lift the USD.
The AUD/USD pair fell to around 0.7005 in early Asian trading Monday, pressured by escalating US-Iran tensions and a stronger US Dollar. Markets reacted to stalled peace talks and Iran’s closure of the Strait of Hormuz, fueling safe-haven demand for the Greenback.
Prior to the Fed’s latest signals, traders priced a 61% chance of a December rate hike, but odds surged past 90% after inflation concerns tied to the Middle East conflict emerged. The Reserve Bank of Australia’s policy stance and iron ore prices remain key drivers for the AUD.
The risk-off mood could persist if geopolitical risks intensify, further supporting the USD against risk-sensitive currencies like the AUD.