[MARKET ANALYSIS] USD buoyed by geopolitics, AUD hit as metals prices sink

• DXY is stronger this morning and currently holds towards the upper end of a 99.51 to 100.01 range. As has been the case for the past few weeks, geopolitics remains the main driver for the index – and the downbeat risk tone plays in favour of the USD.
• A full geopolitical analysis piece is on the Newsquawk feed (08:30 GMT), but in brief US President Trump gave Iran a 48-hour ultimatum on Saturday, noting that if it does not fully open the Strait of Hormuz it would “obliterate” various power plants. Iran responded by suggesting it would completely close the Strait if its power plants were struck, and not reopen until they were rebuilt. It seems, for now, that Iran is calling Trump’s bluff.
• G10s are broadly lower vs the USD. The Aussie underperforms, hampered by the significant losses in precious/base metals prices; AUD/USD has slipped below its 50 DMA (0.6995), to a session low of 0.6949. Other net importers of energy also remains on the backfoot – the CHF, EUR and GBP all extend losses. Perhaps a little redundant at the moment (given geopolitics), but there were some regional political updates out of France and Germany. For the former, local election results were mixed with France's far-right RN winning in smaller cities, whilst losing in bigger ones. For Germany, Chancellor Merz’s CDU won in Rhineland-Palatinate elections, clouding the outlook for SPD, who had previously been in power for 35 years. This brings the potential of two extremes for the dwindling SPD, ING writes. 1) SPD becomes a “genuine junior partner” and pass through reforms proposed by the CDU, 2) SPD blocks reforms, leading to government breakup.
• JPY fares a bit better vs peers, with USD/JPY remaining within a 159.01-159.65 range. On the wages front, Japan's largest trade union group Rengo said prelim data shows average wage hikes of 5.26% for 2026 (vs last year's prelim 5.46%). As a reminder, BoJ Governor Ueda said at March's post-policy press conference that "prelim data shows wage momentum at small and medium sized firms could be better than in past years". The second round is expected on March 27, while final data is typically released in early July. Revisions to the prelim data are generally expected. In the meantime, some attention on potential intervention, with Top FX Diplomat Mimura the latest official to provide some jawboning. Nonetheless, intervention surrounding the current volatile environment seems unlikely at this stage.
• And finally on the central banking front – markets are increasingly pricing in odds of hikes across several Banks. Money markets price in 75bps worth of hikes in ECB and 90bps at the BoE. There will be a slew of central bank speakers dotted throughout the week to provide colour on the current situation; ECB’s Cipollone and Lane and Fed’s Miran are all set to speak today.

The USD is gaining strength primarily due to heightened geopolitical tensions, notably the volatility surrounding Iran and US relations. This risk-off sentiment is negatively impacting the AUD, particularly as falling metals prices exert additional pressure, pushing AUD/USD below its key moving average. Monitoring these geopolitical developments is crucial as they could further influence currency dynamics and risk appetite across markets.