Oil, RBA, and the Two Trades Driving Tuesday's FX Leaders

Tuesday's FX winners rose together, but they did not rise for the same reason. The Australian dollar led after the Reserve Bank of Australia refused to take a rate cut off the table. The dollar and the Canadian dollar followed as Brent crude briefly touched $90, driven by a Strait of Hormuz standoff that looks less like a negotiation and more like a hardening confrontation.

AUD got its own tailwind. The RBA held rates at 4.35%, but the statement described policy as only "somewhat restrictive" and left another hike explicitly available if upside risks materialize. Governor Michele Bullock made the message harder to dismiss in her press conference. She said the Board had considered hiking. "It's important people believe that we will act if we need to," she said. Then she added: "I think personally that it's quite possible we might need to go but we'll wait and see what the data tells us." That language preserves a tightening bias that most other central banks have abandoned. The cash-rate path in the RBA's own forecasts now rises toward 4.5%. The market repriced accordingly, and AUD outperformed through the session.

Oil's move came through a separate channel. The diplomatic path on the Strait of Hormuz is narrowing, not widening. Trump said Monday Iran should pay reparations for damage it had caused over decades. That directly countered demands from Mohammad Bagher Zolghadr, secretary of Iran's Supreme National Security Council. Zolghadr had laid out conditions for reopening the Strait: an end to the US blockade and sanctions, withdrawal of American forces, war reparations, and release of frozen Iranian assets. Rather than bargaining those demands down, Washington responded with a compensation claim of its own. Iran hardened its tone again Tuesday. Foreign Ministry spokesman Esmail Baghaei dismissed Treasury Secretary Scott Bessent's claim that sanctions were "suffocating" the Iranian economy and accused Washington of escalating sanctions whenever diplomacy fails. He called the approach less a policy than a "compulsive addiction."

That is not the language of a negotiation approaching its final compromise. Brent's brief break above $90 matters even though prices subsequently pulled back. The next technical test sits at $92.87 before $100 comes back into play, traders said. The longer the Strait remains unresolved, the harder it becomes to strip the geopolitical premium out of the crude curve.

The oil rally supports the dollar and the loonie through different mechanisms, traders said. CAD gets the direct energy channel: stronger crude improves Canada's external terms of trade and reinforces support already provided by last week's robust jobs report. USD's link is more indirect but equally important. Weak July payrolls raised the hurdle for another Federal Reserve hike, but higher oil keeps the inflation problem alive. Ahead of Wednesday's CPI print, the Brent rebound gives markets another reason not to complete a full dovish Fed repricing, several traders said. CAD is trading the commodity. USD is trading what the commodity means for rates.

AUD leads the day's FX leaderboard. The dollar and loonie follow. The Swiss franc sits at the bottom ahead of the New Zealand dollar and sterling. The euro and yen occupy the middle. The useful observation is that Tuesday's FX leadership is not one broad macro trade wearing three different currency labels. The RBA gave AUD its own domestic reason to outperform. The worsening Hormuz outlook pushed oil high enough to support both CAD and USD through separate transmission channels.

Wednesday's US CPI is the next test for the oil-driven leg of this trade. A hot print would reinforce the case Brent's rally is already building for the dollar and loonie. A soft print would revive dovish Fed repricing despite firmer crude. On the Hormuz side, watch for whether Washington and Tehran show any sign of narrowing their positions rather than hardening them further.