ANZ: U.S. Intervention in Israel-Iran Conflict Could Boost U.S. Dollar by 10%

ANZ has suggested that direct U.S. intervention in the Israel-Iran conflict could potentially boost the U.S. dollar. This assessment comes as tensions in the Middle East escalate, with Israel reportedly striking Iran's underground uranium enrichment facility at Natanz, and Iran vowing retaliatory actions against Israel. The situation has intensified, with Iran's military planning to launch "punitive" strikes against Israel and urging its citizens to evacuate Tel Aviv and Haifa.

The U.S. has been closely monitoring the developments, with the President asserting that the U.S. has complete air superiority over Iran and demanding an unconditional surrender from the country. The President has also hinted at potential strikes against Iran's highest leader, further escalating the conflict. The situation has raised concerns about the broader implications for the region and the global economy.

ANZ's analysis suggests that if the U.S. were to take direct military action in the region, it could lead to a flight to safety, with investors seeking the relative stability of the U.S. dollar. This could result in an increase in demand for the currency, potentially driving up its value. The bank's assessment is based on the historical tendency of the U.S. dollar to strengthen during times of geopolitical uncertainty and conflict, as investors flock to safe-haven assets.

The situation in the Middle East remains fluid, with both Israel and Iran preparing for potential escalations. The U.S. has been cautious in its response, with officials indicating that they are considering all options, including military action. The potential for direct U.S. involvement in the conflict has raised concerns about the broader implications for the region and the global economy.

ANZ's Asia research head noted that direct U.S. intervention in the Israel-Iran conflict would exacerbate geopolitical tensions in the region, leading to a further surge in oil prices, especially if there are serious disruptions in the Strait of Hormuz. This could have significant implications for the global economy, as oil prices are a key driver of inflation and economic growth.

Safe-haven assets such as gold are expected to rise, and the U.S. dollar is likely to benefit as well, particularly given the current level of dollar short positions, which could be unwound. However, the rising oil prices could negatively impact the Japanese yen, which is traditionally seen as a safe-haven currency. The yen may not benefit from the increased demand for safe-haven assets due to the adverse effects of higher oil prices on the Japanese economy.

A prolonged conflict and sustained high oil prices would further complicate the situation for the Federal Reserve, which is already grappling with the impact of tariffs on inflation. The Fed's upcoming interest rate decision will be closely watched, as it could have significant implications for global financial markets and the value of the U.S. dollar. Investors will be looking for any indications of the Fed's stance on monetary policy and its assessment of the economic outlook, particularly in light of the ongoing geopolitical tensions.