Dollar snaps winning streak as Middle East de-escalation eases oil prices
The US dollar paused its recent gains amid easing Middle East tensions and shifting central bank expectations, signaling a cautious shift in global risk sentiment ahead of key inflation data.
The US dollar index snapped a three-day winning streak on Tuesday, holding steady at 98.918 in early Asian trading. This pause in momentum comes as signs of Middle East de-escalation have supported broader risk sentiment and weighed on energy markets.
Brent crude slid 2.1 per cent to $86.68 a barrel during the Asian session. Westpac analysts noted that plans to return US diplomatic staff to the region and efforts to reopen the Strait between Iran and Oman have eased market anxieties, even as direct negotiations between Washington and Tehran remain stalled.
Currency markets reflected these shifting dynamics alongside regional economic data. The Australian dollar edged up 0.1 per cent to $0.7172 after the trimmed mean CPI inflation measure rose at an annualised rate of 3.6 per cent. The euro and British pound remained flat at $1.1675 and $1.3647, respectively.
Conversely, the US dollar weakened 0.1 per cent against the Canadian dollar to C$1.38405, retracing recent gains. This followed Ottawa’s imposition of retaliatory tariffs on roughly $20 billion of US annual imports and new aid for businesses after trade talks collapsed last week.
Investors are also pricing in divergent central bank trajectories across the Pacific. The New Zealand dollar fell 0.2 per cent to $0.5962 ahead of next week’s Reserve Bank of New Zealand decision, where markets overwhelmingly expect a 25 basis point rate hike to 2.75 per cent.
In Japan, the yen held steady at 159.14, remaining below recent intervention thresholds in what currency investor Stephen Jen described as a "watershed moment". Bank of Japan Governor Kazuo Ueda will miss this week’s Jackson Hole gathering due to a schedule conflict, with board member Naoki Tamura attending in his place. Despite the governor’s absence, a majority of economists expect the central bank to raise interest rates again in September, with a higher terminal rate than previously anticipated.
Meanwhile, alternative assets are reflecting renewed dollar debasement trades. Bitcoin and ether climbed 0.8 per cent to $78,829.03 and 0.7 per cent to $2,453.10 respectively, extending strong monthly gains of 25 per cent and 31 per cent. Gold slipped 0.5 per cent to $4,633.94, paring its monthly advance to 15 per cent as risk appetite improved.
