U.S. dollar broadly steady amid Iran war fallout, RBA interest rate hike

The U.S. dollar strengthened slightly on Tuesday, as oil prices remained elevated after U.S. allies largely rebuffed Washington’s calls for aid in reopening a crucial waterway south of Iran.

By 06:25 ET (10:25 GMT), the U.S. dollar index, which tracks the greenback against a basket of rival currencies, had ticked up by 0.1% to 99.78. The euro was largely steady against the dollar at $1.1511, while the British pound inched higher marginally to $1.3331.

Oil prices climbed, with Brent crude futures -- the global benchmark -- continuing to hover above $100 a barrel. Traders have been eyeing the effective closure of the Strait of Hormuz, a vital shipping choke point through which roughly a fifth of the world’s oil passes.

Iran has threatened to attack any vessel carrying goods benefiting the U.S. or its allies attempting to make the crossing, leading many container shipping companies to halt sailings. Prices for oil and gas have surged as a result since start of the joint U.S.-Israeli strikes on Iran in late February, fueling fears over a spike in inflationary pressures.

Faced with the prospect of reignited price growth, some observers have suggested that central banks may begin to once again consider interest rate hikes. Higher borrowing costs may attract more foreign investment, bolstering the appeal of the U.S. dollar. The dollar index, which track the greenback against a basket of rival currencies, has jumped as the conflict has intensified.

On Tuesday, the Reserve Bank of Australia hiked rates to a 10-year high, flagging "material" inflation risks from the Iran conflict. The Australian dollar inched up versus the greenback by 0.1% to $0.7081.

A host of other central banks are set to unveil their own rate decisions this week, including the Federal Reserve on Wednesday.

"The U.S. dollar has started the week on the soft side, on tentative optimism about the Hormuz reopening, but we could see a more muted foreign exchange market today ahead of tomorrow’s [Federal Open Market Committee gathering]," analysts at ING said in a note.

Trump’s call for Strait of Hormuz aid rebuffed

While the U.K. and France suggested that they would be open to discussing options around reopening the Strait of Hormuz with Washington, several U.S. allies rejected President Donald Trump’s call for aid in unblocking the bottleneck, including Germany and Japan.

Trump previously suggested that the U.S. would not need any aid in restarting tanker traffic through the strait, although he said "numerous countries" had told him that "they’re on the way" to providing help.

Elsewhere, Trump has asked that a planned meeting with Chinese counterpart Xi Jinping next month be postponed, just days after he threatened such a delay should Beijing not use its influence with Iran to help reopen the strait.

Over the weekend, Trump called on China to send its navy to secure the Strait of Hormuz, a major waterway south of Iran through which roughly a fifth of the world’s oil supply flows.

Yet China, which buys oil from Iran, appears to have little incentive to heed Trump’s demand. Tehran has allowed Chinese tankers to traverse the strait, even as it has warned of attacks on any vessel carrying goods that may benefit the U.S. or its allies.

Early on Tuesday, a projectile hit a tanker anchored close to a port in the United Arab Emirates, the New York Times reported. Citing the United Kingdom Maritime Trade Operations Center, the paper said the ship, which was near the port of Fujairah at the southern end of the strait, had only minor damage.

Officials in the UAE also said that a drone had been the cause of a fire at a key oil industry hub.

Meanwhile, Israel has said that Iranian security chief, Ali Larijani, is believed to have been killed in air strikes on Monday, the Wall Street Journal has reported, citing people familiar with the matter.

The WSJ added that Iranian state media would publish a statement from Larijani soon.

Other media reports also said Gholamreza Soleimani, the commander of Iran’s Basij paramilitary unit, which played a role in suppressing anti-government protests earlier this year, had been killed as well. There was no confirmation yet from Iranian officials or state-backed media.