Oil prices soar, this currency unexpectedly becomes a safe haven.

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Amid global market turbulence, the Australian dollar is unexpectedly rising as a safe-haven asset.

On Wednesday, the AUD/USD climbed to 71.78 cents, its highest point since June 2022, and also reached its strongest level against the yen in 35 years, making it the best-performing major currency this year. This trend is driven by persistently high oil and gas prices and strong market expectations that the Reserve Bank of Australia could raise interest rates as early as next week. Citi predicts the AUD may rise to 75 cents within three months.

This trend overturns the traditional pattern of the Australian dollar typically weakening during periods of geopolitical tension. Nick Twidale, Chief Market Analyst at AT Global Markets in Sydney, said, "In the current environment, the Australian dollar is a better choice than other currencies," but he also noted, "this goes against the traditional direction we usually see during geopolitical tensions—when the AUD often broadly weakens, especially against the yen."

Rate hike expectations boost yield advantage

Interest rate expectations are one of the core driving forces supporting the AUD. Current pricing in interest rate swap markets shows the probability of the RBA raising rates at its March 17 meeting exceeds 70%. The RBA previously made hawkish statements, clearly indicating it will not hesitate to raise policy rates if the Iran conflict further intensifies inflationary pressures.

This expectation has pushed Australian government bond yields to among the highest in developed countries. The AUD-USD benchmark yield spread widened to its broadest since October 2022 on Tuesday, further enhancing the AUD’s appeal. According to Bloomberg's compiled options market data, as of Wednesday morning, the probability of the AUD reaching 75 cents within three months is close to 33%.

Energy exporter status provides extra support

Apart from interest rate factors, Australia's status as a major energy exporter allows it to further benefit amid elevated oil and gas prices.

Citi strategist Dirk Willer wrote in a client report, "Even during the fiercest Iran-related market pressure, the AUD barely saw any significant sell-off. The positive influence of terms of trade, together with the central bank’s hawkish stance, jointly provided support."

Citi believes if oil prices stabilize at high levels rather than continue to rise, combined with the RBA maintaining its hawkish tone, momentum for AUD gains could regroup. Analysts point out that as long as energy prices stay high, the AUD can continue to benefit from improved trade conditions and thus maintain relative resilience amid broader market volatility.

Risk Warning and DisclaimerThe market involves risks and investment must be made cautiously. This article does not constitute personal investment advice and has not considered individual users’ specific investment objectives, financial situation, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article meet their particular circumstances. Investment based on this is at your own risk. ```