FX.co ★ Aussie Heads for Sharp Weekly Gain

The Australian dollar held near recent highs around $0.708 and is on track for its largest weekly gain since mid-January, as surging oil prices amid the escalating conflict in the Middle East stoked inflation fears and heightened the risk of further tightening by the Reserve Bank of Australia (RBA).

On Thursday, the RBA warned that the conflict represents a material risk to the domestic economy. Governor Michele Bullock again highlighted persistent inflation pressures and stressed that the board remains unsure whether current policy settings are sufficiently restrictive. A relatively robust labor market report further supported the RBA’s assessment that the economy can bear additional tightening.

These developments come on the heels of back-to-back interest rate increases by the RBA earlier in the week. Markets remain split on the likelihood of another move as early as May, while a further hike by August is fully priced in.

At the same time, following Tehran’s strikes across the Gulf, investors assessed signals from the US and Israel suggesting they would show restraint in launching additional attacks on Iranian energy infrastructure.