The Australia dollar is up almost two per cent for the month so far, holding its own in spite of the geopolitical turmoil.
NAB's senior FX strategist, Rodrigo Catril joined The Business to explain the Australian dollar's resilience. He says the relative strength against the greenback and other major currencies comes down to several factors. One is that the Reserve Bank has hiked interest rates twice so far this year and is expected to continue on the hawkish path given the inflationary risk of the Middle East war. "The conflict itself has raised a lot of questions around inflation, and that has triggered a market response that the RBA will be more inclined to remain hawkish or to continue to hike in the face of what looks to be an inflationary shock," he says.
Another factor, he says, is that Australia is a major LNG exporter.
Although consumers suffer from high oil prices, in the sense of paying higher prices at the petrol pump, and higher energy prices, he says looking at the economy as a whole, "it's actually kind of positive, because we export more energy than what we import. There are royalties involved, and there's dividends involved for companies that are benefiting from this shock, so overall, there's a net positive for the economy."
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