Recent developments in the Middle East, particularly the US-Israel conflict with Iran and military actions on Kharg Island, have heightened geopolitical risks and influenced currency markets. Over the weekend, US forces targeted every military site on Kharg Island, a critical Iranian oil export hub, with Iran threatening retaliation against US-linked oil facilities in the region [1][2]. US President Donald Trump stated that oil infrastructure was not struck and is in talks with other countries about policing the Strait of Hormuz, with Israel collaborating on securing the vital shipping route [1][2]. Trump also called on allied nations, including the UK, France, China, and Japan, to assist in securing the Strait, and a potential White House announcement is expected soon [2]. European Union foreign ministers are meeting in Brussels to discuss a possible naval response to the effective closure of the Strait [2].
The AUD/JPY cross strengthened above 111.50, trading around 111.70 during the early European session on Monday, supported by bullish technicals and stronger-than-expected Chinese economic data. China’s Retail Sales rose 2.8% YoY in January-February, compared to 0.9% previously, and Industrial Production climbed 6.3% YoY, both exceeding market expectations [1]. Technical analysis indicates a medium-term uptrend for AUD/JPY, with price holding above the rising 100-day EMA at 106.20 and RSI near 58, suggesting positive momentum. Immediate resistance is at 112.50, with support at 111.00 and 110.00 [1]. However, rising tensions in the Middle East could lift the JPY as a safe-haven asset and create headwinds for the cross [1].
Meanwhile, USD/CHF slipped below 0.7900, trading around 0.7890 during Asian hours on Monday, as the US Dollar weakened amid easing risk aversion on reports of a possible coalition to escort ships through the Strait of Hormuz [2]. US Energy Secretary Chris Wright expects the US-Israel conflict with Iran to end within “the next few weeks,” potentially allowing oil supplies to recover and energy prices to decline [2]. The Swiss Franc may gain support from safe-haven demand as traders remain cautious amid persistent geopolitical risks, though its upside could be limited by the Swiss National Bank's readiness to intervene in FX markets [2].
The US Federal Reserve is expected to keep interest rates unchanged on Wednesday, with traders monitoring guidance for the remainder of the year, especially regarding inflation risks from the recent surge in energy prices [2].
CONCLUSION
Heightened geopolitical tensions in the Middle East are driving safe-haven demand, impacting both the AUD/JPY and USD/CHF currency pairs. While positive Chinese economic data supports the Aussie, ongoing risks may favor the Yen and Swiss Franc. Market participants remain cautious, awaiting further developments and central bank guidance.