Key Takeaways
- The US dollar hovered near a one-week high on Tuesday.
- Markets remain volatile due to ongoing Middle East hostilities, with oil prices experiencing sharp swings.
- Inflation risks loom large as traders weigh the impact of renewed oil price increases.
The US dollar was trading close to a one-week high on Tuesday, reflecting market volatility amid heightened tensions in the Gulf region. The currency index, which measures the dollar against a basket of six peers, remained steady at 100.96, near its highest level since July 15.
Rodrigo Catril, senior currency strategist at National Australia Bank, commented on the ongoing uncertainty: 'There is the hope for easing in a little bit of tensions and we’ll hit a pause button at some stage. It’s all still very volatile.'
The renewed hostilities between Yemen's Iran-aligned Houthis and Saudi Arabia have raised concerns over global energy supplies. The Houthis declared a naval blockade on Saudi Arabia, adding to the already tense situation in the region.
Despite the geopolitical uncertainties, there were some positive signs of de-escalation. Tehran received a 10-day ceasefire proposal from mediators, offering a temporary reprieve for market participants who had been closely watching the developments.
Inflation risks are also on the rise as traders assess whether renewed oil price increases will eventually feed through to consumer prices. The benchmark 10-year Treasury yield remained elevated at 4.5937%, while yields on 30-year Treasuries were firmly above the 5% mark.
The New Zealand dollar strengthened by 0.4% to $0.5860, its highest level since early June, following strong inflation data that reinforced expectations of further interest rate hikes. The Australian dollar was also slightly stronger at $0.7001.
Meanwhile, the European Central Bank survey showed that euro zone firms expect selling prices to rise more moderately. However, high oil prices are fuelling bets for another hike in the 2.25% deposit rate in September.
Elsewhere, the Canadian dollar steadied after dropping to a one-month low following the United States' imposition of a new tariff of 50% on a wide range of Canadian products as a response to what it called Ottawa’s 'discriminatory treatment'.
There is the hope for easing in a little bit of tensions and we’ll hit a pause button at some stage. It’s all still very volatile.
Rodrigo Catril, Senior currency strategist, National Australia Bank
