The Australian dollar rose in Asian trading on Wednesday against a basket of global currencies, extending gains for the fourth consecutive day versus the US dollar and reaching its highest level in four years, supported by the decline of the US currency ahead of key US inflation data.

The deputy governor of the Reserve Bank of Australia warned that the sharp rise in oil prices could push inflation higher and increase pressure for an interest rate hike at next week’s monetary policy meeting.

Price Overview

Australian dollar exchange rate today: the Australian dollar rose 0.9% against the US dollar to 0.7182, the highest level since June 2022, up from the session opening at 0.7119, and recorded a low of 0.7113.

The Australian dollar closed Tuesday’s trading up about 0.6% against the US dollar, marking its third consecutive daily gain amid improving risk sentiment in global markets.

US Dollar

The dollar index fell 0.2% on Wednesday, resuming losses that had briefly paused in the previous session, trading near a one-week low and reflecting weaker performance of the US currency against a basket of major and secondary currencies.

The decline comes as demand for the dollar as a preferred safe-haven asset slows, with growing hopes that the Iran war may soon end following intensified US diplomatic efforts to reach a ceasefire agreement through Russian mediation.

Later today, key US inflation data for February will be released, which could provide strong and decisive signals about the likelihood of the Federal Reserve cutting interest rates during the first half of this year.

Reserve Bank of Australia

Deputy governor of the Reserve Bank of Australia, Andrew Hauser, warned on Tuesday that the sharp increase in oil prices could push inflation higher and increase pressure to raise interest rates at next week’s monetary policy meeting.

Australian interest rates

Clifton from the Commonwealth Bank of Australia said the war in the Middle East has had major implications for central bank interest rate expectations.

He added that since the outbreak of the conflict at the end of February, markets have shifted either from pricing in rate cuts to pricing in rate hikes, or to expecting fewer rate cuts than previously anticipated.

Markets are currently pricing about an 80% probability that the Reserve Bank of Australia will raise interest rates by 25 basis points next week, while the probability of a 25-basis-point hike in May stands at around 95%.

US stock indices showed mixed performance during trading on Tuesday as markets continued to monitor developments in the Middle East between the United States and Iran and their impact on global energy supplies.

President Donald Trump predicted a quick end to the war with Iran, which had disrupted global crude flows and triggered a sharp drop in oil prices.

Midway through Tuesday’s session, oil prices briefly declined further after US Energy Secretary Chris Wright posted on X that the US military had facilitated the passage of an oil shipment through the Strait of Hormuz, before later deleting the post.

The drop followed a record surge in oil prices that pushed them on Monday to their highest levels since June 2022, above $119 per barrel, amid production cuts from Saudi Arabia and other producers, raising fears of major disruptions to global supplies.

Brent crude futures for May delivery fell 11.28%, or $11.16, at settlement to $87.80 per barrel.

US Nymex crude futures for April delivery declined 11.94%, or $11.32, to close at $83.45 per barrel.

At the close, the Dow Jones Industrial Average slipped 0.1%, or 34 points, to 47,706 points, after touching a high of 48,220 and a low of 47,444.

The broader S&P 500 index fell 0.2%, or 14 points, to 6,781 points, reaching a high of 6,845 and a low of 6,759.

Meanwhile, the Nasdaq index edged up by less than 0.1%, or about 1 point, to 22,697 points, after hitting a high of 22,906 and a low of 22,608.

Oil prices fell sharply during trading on Tuesday after US President Donald Trump said he expects the war in the Middle East to end soon, signaling a potential easing of geopolitical tensions that have been disrupting crude flows.

Oil losses deepened later in the day after US Energy Secretary Chris Wright posted on X that US naval forces had escorted an oil shipment through the Strait of Hormuz to ensure its safe passage, although Wright later deleted the post.

Meanwhile, the International Energy Agency called for an emergency meeting of member states to discuss the possibility of releasing part of their strategic oil reserves.

In trading, Brent crude futures for May delivery dropped 11.28%, or $11.16, at settlement to $87.80 per barrel.

US Nymex crude futures for April delivery also fell 11.94%, or $11.32, to close at $83.45 per barrel.

Long-standing tensions in the Middle East are no longer simmering beneath the surface; they have evolved into a multi-front conflict not seen in the region since the Six-Day War of 1967, with Iran at the center of the escalation. US and Israeli forces are conducting an ongoing campaign against Iranian territory, leadership infrastructure, and militia assets across active fronts. Yet Iran and its network of militias continue to respond — from missile launches to disruptions in maritime navigation — even as they suffer significant losses and declining operational capabilities.

In Washington, US President Donald Trump has outlined four clear objectives for the war against Iran, with the current campaign expected to last about four weeks. Iran, however, has a different vision. The real question now is how this escalation cycle will evolve and what impact it may have on energy markets.

At the beginning of the conflict, Trump clearly stated the four goals he seeks to achieve through US actions against Iran and its militias. As listed, they begin with preventing Iran from building a nuclear arsenal, followed by undermining and destroying its missile stockpiles and production capabilities. Next comes regime change, and finally ending the financing and arming of its militias. Every member of his cabinet has endorsed these objectives.

Beyond the US war goals, most analysts have overlooked that many of these objectives were included in the initial version of the nuclear agreement between Barack Obama and Iran, known as the Joint Comprehensive Plan of Action (JCPOA) negotiated between 2013 and 2015. The exception was the explicit term “regime change,” although this was implicitly embedded in measures aimed at dismantling the key mechanisms the Islamic Revolutionary Guard Corps (IRGC) used to fund itself and its militias. The IRGC is the primary organization tasked with protecting the principles of the 1979 Islamic Revolution domestically and expanding them through its militia networks.

The core mechanism for restricting funding involved forcing Iran to comply with the requirements of the Financial Action Task Force (FATF). The US objective was to neutralize the IRGC in a way that would eventually allow it to be merged into Iran’s regular military, known as the Artesh, as outlined in the author’s recent book on the new global order of oil markets. Many of these provisions were removed from the final JCPOA before it was signed on July 14, 2015. When Trump decided to withdraw unilaterally from the JCPOA in 2018, he cited the original Obama draft as a foundation for renegotiation.

Trump therefore made it clear that regime change is one of the four main objectives — something Iran’s leadership and the IRGC had understood from the outset. Given the existential nature of the conflict, the chances of reaching a meaningful negotiated settlement between the Islamic Republic and the IRGC on one side and the United States and Israel on the other remain extremely slim.

David Petraeus, the former US general and CIA director, confirmed that the death of former Supreme Leader Ali Khamenei and several senior IRGC commanders does not undermine the operational continuity of the Islamic Republic or the forces that protect the regime. He pointed out that a highly organized and armed structure of roughly one million personnel remains in place, including about 200,000 members of the Basij militia, 200,000 in the national police and IRGC units, and roughly 400,000 troops in Iran’s regular army (Artesh), making control of Iran extraordinarily difficult.

Moreover, any potential regime change lacks a credible alternative leadership. Reza Pahlavi, the exiled son of the former shah who resides in the United States, has limited support inside Iran.

According to a European security source close to the European Union, the broader strategy of the IRGC is to continue “stinging” the United States and Israel through sustained attacks until both countries conclude they have achieved enough objectives to withdraw, even without regime change. This strategy includes maintaining an effective closure of major oil and liquefied natural gas routes through the Strait of Hormuz and the Bab el-Mandeb Strait.

Although the Trump administration has proposed a plan to secure the Strait of Hormuz — through which roughly one-third of the world’s oil and about one-fifth of global LNG pass — there is still no timeline for ensuring safe passage for oil tankers. Just last year, the IRGC completed military preparations to close the strait if necessary using anti-ship missiles, fast attack boats, and naval minefields in the Persian Gulf. It also conducted exercises using “swarm attack” tactics with drones and vessels, according to the European source. Similar weapons could be used to disrupt shipping near the Bab el-Mandeb Strait, which connects the western coast of Yemen — controlled by Iranian-backed Houthi militias — with the eastern shores of Djibouti and Eritrea before entering the Red Sea.

In addition to these measures, Iran is expected to intensify attacks against US allies in the region, particularly Saudi Arabia. Last week saw several drone attacks targeting the Ras Tanura refinery — Saudi Arabia’s largest refinery with a capacity of about 550,000 barrels per day. Most of the drones were intercepted, and the refinery was temporarily shut as a precaution. The facility and others are likely to remain targets for future strikes in an effort to replicate the massive impact of the 2019 Houthi attacks on Saudi Arabia’s Abqaiq and Khurais facilities, which at the time represented about 50% of Saudi oil production or roughly 5% of global supply. Those attacks triggered an immediate spike in global oil prices of up to 20% and were among the most significant assaults on energy infrastructure in modern history.

The European source added that Iran’s military operations, measured on a scale from zero to nine in terms of overall capability, have not yet exceeded level two.

Rising oil prices also have a direct and potentially damaging effect on the US economy and the president’s political ambitions, a factor likely to weigh on Trump’s calculations as the November 3 midterm elections approach. According to the World Bank, a “small disruption” in global oil supply — between 500,000 and 2 million barrels per day — could raise prices by 3–13%. A “moderate disruption” of 3 to 5 million barrels per day could increase prices by 21–35%. A “major disruption” of 6 to 8 million barrels per day, similar to the 1973 oil crisis, could push prices up by 56–75%.