The Australian dollar was little changed around $0.691 on Friday in thin holiday trading, but remained on track for a modest weekly gain amid hopes of de-escalation in the Middle East and a partial reopening of the Strait of Hormuz. Reports indicated that Iran and Oman are drafting a protocol to monitor tanker traffic through the key oil-shipping chokepoint, which has been effectively closed since the conflict began. Under the proposed plan, transit would be placed under joint supervision and ships could be required to pay tolls to Tehran.
Nonetheless, sentiment stayed cautious as oil prices remained elevated after President Trump pledged to intensify the conflict in the coming weeks. Economists warned that higher energy costs are likely to push up inflation, prompting downward revisions to growth forecasts and increasing expectations of further interest rate hikes as stagflation risks build. Futures markets are currently pricing in about a 70% probability of a 25bp increase in the Reserve Bank’s cash rate to 4.1% in May, with rates seen peaking near 4.6% by September.
