Australian dollar hits four-year high on Iran war, looming interest rate hikes

The Australian dollar has emerged as unlikely safe haven for investors unnerved by the Iran war, racing to a four-year high of nearly US72¢.

At Wednesday’s Australian close of US71.8¢ — its strongest level since June 2022 — the dollar is now the best performer this year from the G10 basket of currencies, which includes the US dollar, the British pound and the Japanese yen.

“Strong momentum, favourable macro dynamics and rising rate expectations continue to position the Australian dollar as one of the most compelling currencies in the G10 complex in 2026,” Pepperstone head of research Chris Weston said.

The Iran war has helped fuel the dollar’s run, with the resulting jump in oil and gas prices enhancing the currency’s reputation as a beneficiary of strong commodity markets.

The prospect of another interest rate rise as early as next week is also driving support, as is Australia’s growing economy and a perception the country is better insulated from the Middle East conflict.

While there was no relief from rising petrol prices, oil retreated back under $US90 a barrel on Wednesday off the back of a media report that International Energy Agency members had agreed to the organisation ‘s biggest-ever release of emergency oil reserves to contain spiking oil and gas prices.

The release, thought to be imminent, would exceed the 182 million barrels released after Russia invaded Ukraine in 2022.

However, analysts are already warning it could have only a limited affect on prices, noting daily global oil consumption exceeds 100 million barrels a day.

Global energy markets have been jolted by the war, which has closed the Strait of Hormuz — a key transit route for Middle East oil exports — forcing regional energy producers to halt output, pushing prices up and sparking shortages of oil, gas and diesel in some markets.

The price surge has triggered concerns about an outbreak of inflation that would retard global economic growth, with the worries amplified by the mixed and inconsistent messaging by the US about its war aims.

The uncertainty around a reopening of the Strait heightened on Wednesday after an attack on a cargo ship in the waterway.

The UK Maritime Trade Operations Centre said the unidentified vessel had reported a suspected missile hit about 18km north of Oman’s coastline.

The US has promised naval escorts to protect shipping using the Strait but has yet to carry through on its plan.

In his first public comments since the US and Israel attacked Iran, the head of Saudi energy giant Aramco warned of “catastrophic consequences” if the Strait wasn’t reopened soon.

Amin Nasser said the war had caused “a severe chain reaction” and “a drastic domino effect” beyond shipping, “on aviation, agriculture, automotive, and other industries”.

“While we have faced disruptions in the past, this one by far is the biggest crisis the region’s oil and gas industry has faced,” Mr Nasser said.

“There will be catastrophic consequences for the world’s oil market. The longer the disruption goes on and the more drastic the consequences for the global economy.”

Aramco, the world’s biggest oil exporter, has been unable to ship oil cargoes though the Persian Gulf because of the conflict.