Dollar holds as Iran and US midterm risks weigh, RBA raises rates

what happened

The dollar was on the defensive on Tuesday, Reuters reports, as markets stayed wary of tensions between the US and Iran ahead of the midterm elections. Brent crude rose 0.5% to $105.25 in early Asian trade, recovering part of Monday's drop of more than 7%. The move followed US "defensive" strikes on Iran's Qeshm Island, which dulled hopes for talks to end the eight-month war.

The Reserve Bank of Australia raised its official cash rate by 25 basis points to 4.85%, as widely expected and the highest level since December 2008. The Australian dollar fell as much as 0.35% to $0.6974 after the decision. Core inflation stands at 3.7%, well above the bank's 2% to 3% target range.

China's central bank also said it will raise the reserve requirement ratio on foreign exchange, a step that tightens dollar liquidity and slows yuan gains. The offshore yuan slipped toward 6.67 per dollar and was on course for its biggest one-day decline since May. The euro stood at $1.1182 and the yen at 157.92 per dollar.

why it matters

Tighter policy in Australia and reduced dollar liquidity in China are shaping currency flows, while safe-haven demand tied to geopolitics and election risks supports the dollar. Investors are also watching Britain, where economists polled by Reuters expect the Bank of England to raise its rate to 4.0% from 3.75%, the first hike since August 2023.

market impact

Dollar: safe-haven demand over Iran and midterm risks supports the currency; AUD/USD under pressure after RBA hike

• ▲US dollar pressure up — safe-haven demand from US-Iran tensions and midterm election risks
• ▼Australian dollar pressure down — dipped after the rate decision that investors had heavily bet on

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