The US dollar held near its strongest level of the week against most major currencies during early Asian trading on Wednesday after renewed US strikes on Iran reignited geopolitical tensions and pushed oil prices higher.
The dollar index, which tracks the greenback against a basket of six major currencies, rose to 101.18.
Meanwhile, the New Zealand dollar strengthened after the country’s central bank raised interest rates and signaled that additional monetary tightening could follow.
The greenback gained 0.2% against the Japanese yen to trade at 162.46, extending its advance for a fourth consecutive session.
The move pushed the currency to its strongest level since July 2.
New Zealand dollar jumps after rate hike
The New Zealand dollar rose 0.5% to a high of $0.5705 after the Reserve Bank of New Zealand increased its benchmark interest rate by 25 basis points to 2.5%, in line with economists’ expectations.
The central bank said “some further reduction in monetary stimulus is likely to be required” to keep inflation under control, signaling that additional policy tightening may be needed in the coming months.
The Australian dollar also moved higher, gaining 0.1% to $0.6938.
Iran developments support demand for the dollar
Demand for the US dollar strengthened after the United States launched a new wave of strikes against Iran on Tuesday.
The US also revoked a licence that had allowed Iran to sell oil after three tankers were attacked in the Strait of Hormuz.
The developments increased demand for the dollar, which is widely regarded as a global safe-haven currency during periods of geopolitical uncertainty.
In a research report, DBS analysts said, “For now, the market is keeping to the playbook that Tehran and Washington are still in a high-stakes game to gain leverage during the temporary truce, and that Tuesday’s incident would not descend back into a full-scale war.”
Oil extends rally as geopolitical risks remain in focus
Brent crude futures rose 2.5% to $76.03 per barrel during Asian trading on Wednesday, extending gains for a second consecutive session as markets continued to assess the implications of the latest developments involving Iran.
Higher oil prices reflected investor concerns over potential disruptions to energy supplies following the attacks and the renewed military action.
Yen weakens as BOJ policymaker signals caution
The Japanese yen moved closer to a fresh 40-year low after Bank of Japan board member Toichiro Asada, the lone dissenter to the central bank’s June interest rate increase, reiterated his cautious stance on further policy tightening.
His comments reinforced expectations that the Bank of Japan could remain cautious about tightening monetary policy despite the yen’s prolonged weakness.
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