AUD/JPY holds above 114.00 as strait tensions ease

The Australian dollar held firm above 114.00 against the Japanese yen on Wednesday after reports that a months-long blockade of the Strait of Hormuz was easing.

Traders immediately priced in a lower geopolitical risk premium, selling the safe-haven Japanese yen and favoring the Australian dollar, which is closely tied to global growth and commodity exports.

The AUD/JPY cross, a key barometer of risk sentiment, traded as high as 114.21. The move coincided with a dip in crude oil futures, as the potential reopening of the Strait of Hormuz promises to restore hundreds of millions of barrels of supply to a market that has been relying on emergency reserves.

The blockade has been a primary concern for the global economy, with top oil traders warning of a potential recession due to the supply shock. A lasting resolution that reopens the vital waterway could lead to a significant drop in energy prices and a broader rally in risk assets.

The partial closure of the Strait of Hormuz, a chokepoint for about a fifth of the world's oil supply, began in late February after the outbreak of hostilities between the U.S. and Iran. Consumer nations have since drawn down strategic petroleum reserves to mitigate the shortfall, but the long-term economic damage has been a persistent threat.

While the current easing is a positive development, the situation remains fragile. The sustainability of the AUD/JPY rally above 114.00 will depend on continued de-escalation and a verifiable reopening of the strait to international shipping.

This article is for informational purposes only and does not constitute investment advice.