The Israeli strike on Iranian military and nuclear infrastructure has triggered a surge in geopolitical risk across the Middle East. This event is not just a one-off flare-up it raises the possibility of a broader regional escalation involving global powers, which is causing global risk sentiment to deteriorate sharply.

In that environment, investors rotate out of risk-sensitive currencies like the Australian dollar (AUD) and into relatively safer or commodity-supported currencies like the Canadian dollar (CAD). The sharp rally in crude oil due to fears of supply disruption from the region further boosts CAD as Canada is a major energy exporter.

Geopolitical Shock: The Israeli offensive on Iran’s nuclear sites marks a significant escalation and is not expected to be short-lived. Iran’s potential retaliation could lead to higher oil prices, closed airspaces, and broader market instability.

Risk Sentiment: AUD is typically sold off in global uncertainty due to its close ties with Chinese growth and commodities that are sensitive to global demand.

Oil Surge & CAD Strength: Brent and WTI crude have surged over 5–6% in response to the strikes. This strengthens the Canadian dollar as oil exports are a major part of Canada’s trade balance and GDP.

Flight to Quality Rotation: Markets are unwinding risk-on trades, favoring currencies like CAD that are backed by hard assets and less exposed to global trade disruptions.

SHORT AUDCAD

Jun 13 2025