Markets have embraced the idea that Australia benefits from energy turmoil. and reflect that view. The structural reality is more fragile.
- Markets see Australia as an energy winner
- Oil and fuel exposure tells a different story
- AUD/JPY, EUR/AUD stretched
- Risk of sharp retracements if risk sentiment deteriorates
Resource Rich, Fuel Exposed
There’s a view doing the rounds this week that Australia benefits from energy supply disruptions because we’re resource-rich. The logic is simple: we export , we dig up coal, and therefore higher energy prices should be a positive.
That view is not entirely incorrect, but it is incomplete.
Yes, Australia is a major exporter of gas and other commodities. But when the shock is centred on and refined petroleum products, we’re very vulnerable. Perhaps not as much as some parts of the world, but vulnerable nonetheless.
Australia has just two operating refineries onshore and imports the bulk of its petrol, diesel and jet fuel. In other words, while we export energy in one form, we remain heavily reliant on overseas refining capacity and international shipping routes for fuels that power transport and logistics domestically.
Markets may not care right now, but the distinction matters. If oil prices spike on Middle East tensions, Australian households and businesses will feel it quickly through higher fuel costs and rising transport expenses. And if disruptions move beyond price into shipping lanes or regional refining hubs, as is already happening, the risk is no longer just inflationary, it becomes logistical, with the potential for shortages.
It’s also worth remembering that the majority of Australia’s LNG exports are sold under long-term contracts. That means spot price spikes do not automatically translate into an immediate windfall for the broader economy. The upside from higher LNG prices is often slower and more limited than markets assume.
So while Australia may benefit at the margin from stronger LNG pricing, the broader economy remains exposed to oil shocks. That reality should temper the narrative that the Australian dollar is a clean beneficiary of energy supply disruptions, casting some doubt as to whether it can continue to hold up should tensions in the Middle East drag out for weeks or even months.
For now, however, the narrative is supporting the , limiting its losses against the and seeing it outperform currencies in parts of the world deemed to be facing more acute energy supply risks, notably continental Europe and Japan.
GDP and RBA Provide Cover
Expectations for a strong Australian Q4 print on Wednesday are also providing tailwinds. A sizeable contribution from government demand and investment has led some forecasters to lift their quarterly estimates to as much as 1%.
Relatively hawkish remarks from RBA Governor Michele Bullock earlier Tuesday have added support. She reinforced the message that every future monetary policy meeting is “live” for a potential rate increase, including the one later this month.
Bullock noted that a large part of the unexpected lift in inflation since last year reflected “sector-specific demand and price pressures” that the Board expects to ease in coming quarters. However, she also acknowledged that “economy-wide capacity pressures” are playing a role, with “underlying demand in the economy further from its supply potential than we had assessed six months ago.”
With labour market outcomes stronger than the Bank had anticipated, the question for March will likely come down to how much weight the RBA places on those broader capacity pressures. If significant they go again.
Swaps traders took notice. The implied probability of a 25 basis point hike in March lifted from below 10% to nearly 30%. May is still favoured for the next move, but the repricing helped underpin the Aussie during another risk-off session in Asia.
Source: Bloomberg
Not at Alarm Stations, Yet
However, while the Aussie may be enjoying its day in the sun thanks to the domestic backdrop, how long that can be sustained if energy supply concerns intensify is questionable, particularly if the shock spills over into broader economic activity and asset prices, amplifying risk aversion.
We’re not at alarm stations yet. But the risk is real, and it grows the longer this drags on.
If that scenario begins to take shape, some of the more pronounced bullish trends the Aussie has enjoyed against the yen and the euro in recent months would become vulnerable to mean reversion.
EUR/AUD Heavy and Stretched
Source: TradingView
EUR/AUD is heavy. There’s no need to reinvent the wheel. The pair has produced a relentless string of bearish price signals, slicing through support like a hot knife through butter. Lower highs, lower lows, strong bear trend. Simple.
That said, it’s stretched. Very stretched. RSI (14) is deep in oversold territory, leaving the cross vulnerable to any deterioration in broader risk sentiment or shift in the macro narrative.
Having cleared 1.6500 support earlier today, the next downside levels to monitor sit at 1.6355, 1.6164 and 1.5968.
If we do see a trend shift or a meaningful bottoming signal, 1.6500 may act as a magnet for a retest. Above there, 1.6800 and 1.7100 come into view as former breakdown levels.
For now, momentum remains firmly to the downside. Oversold does not mean finished.
AUD/JPY Rips as War Erupts
Source: TradingView
The picture is much the same for AUD/JPY, albeit a mirror image.
It is remarkable that a pair many older traders would nominate as the pure proxy for global risk sentiment is trading at multi-decade highs only days after a serious geopolitical escalation that could impair global growth. But here we are.
The is only a safe haven when capital is forced home. And while the risk of a disorderly carry unwind remains, for now the path of least resistance is higher.
112.09 is the high water mark overhead. A sustained move beyond that leaves it up to price action to signal when an eventual top may form.
On the downside, 110 was the breakout level earlier this month and has since been backtested and held, making it the first level of note. A break below would bring the October 2025 uptrend into play. A clean violation of that trendline would materially shift the structure, opening the door to a deeper flush toward 107.70, the 50-day moving average, 104.40 and the November 2024 high at 102.40.
Momentum is supportive for now. RSI (14) is attempting to break the prior sequence of negative divergence and is on track to set a higher high. It is not overbought and continues to trend higher, pointing to building upside pressure. MACD has confirmed the shift, reinforcing a momentum profile that favours bullish setups over shorts.
