The Australian Dollar weakened by 0.36% on Thursday, with the AUD/USD pair slipping toward 0.6900 following harsh remarks from US President Donald Trump. Trump warned that the ongoing conflict would last 2 to 3 weeks and would hit Iran harder, which lifted the US Dollar and pushed AUD/USD to a daily low of 0.6860 before stabilizing around 0.6900 [1]. Geopolitical concerns drove financial markets, leading to a rise in the US Dollar and US Treasury yields, while global equities declined and oil prices surged. WTI crude oil jumped more than 11%, trading above $111.00 per barrel [1].
Trump's speech also included a challenge to US allies to work toward reopening the Strait of Hormuz, and he posted a video of a bridge blast in Iran on his Truth Social account, pressuring Iran to reach a deal [1]. US economic data showed the trade deficit widened by 3.0% to $84.6 billion in February, with imports up 4.3% to $372.1 billion and exports rising 4.2% to a record $314.8 billion [1]. The US labor market remained firm, as Initial Jobless Claims for the week ending March 28 fell to 202K from 215K, below forecasts of 212K, while the Challenger Grey & Christmas jobs report indicated over 60K job cuts in March [1]. The Atlanta Fed's GDPNow growth estimate for Q1 2026 dropped 0.3% to 1.6% after the trade data [1]. The US Dollar Index (DXY) rose 0.46% to 100.01 as the New York close approached [1].
In Australia, the goods trade surplus more than doubled in February due to higher gold and farm exports. This, combined with slightly hawkish rhetoric from the Reserve Bank of Australia (RBA) and China's NBS Manufacturing and Services PMI returning to expansion, could support the AUD/USD [1]. RBA Assistant Governor Christopher Kent noted that the Middle East conflict has tightened financial conditions and poses inflation risks [1]. The RBA's meeting minutes showed a commitment to restrictive financial conditions to return inflation to target [1]. The swaps market priced in a 71% chance of an RBA rate hike at the May 5 meeting. Josh Williamson, chief Australian economist at Citi, forecasted another 25bp hike from the RBA in June, in addition to the expected May hike, taking the terminal rate to 4.6% in 2026, with rate cuts anticipated in 2027 [1].
CONCLUSION
The AUD/USD pair declined sharply as geopolitical tensions and Trump’s remarks boosted the US Dollar and drove risk-off sentiment. Despite positive Australian trade data and expectations of further RBA tightening, global market volatility and rising oil prices weighed on the Aussie. Market participants are closely watching upcoming RBA decisions and geopolitical developments for further direction.