The US Dollar strengthened significantly against major currencies during the early European session on Tuesday, driven by escalating tensions in the Middle East and conflicting reports of diplomatic progress between the US and Iran. US President Donald Trump announced a five-day postponement of his deadline for Iran to reopen the Strait of Hormuz, citing 'productive conversations' with Tehran. However, Iran denied any dialogue with Washington, fueling uncertainty and risk-off sentiment in global markets [1][2]. This geopolitical backdrop boosted demand for safe-haven assets, notably the US Dollar, which was the strongest against the Australian Dollar, rising 0.57% on the day [2].
The AUD/USD pair tumbled to near 0.6980, breaking below the 0.7000 level, as the US Dollar's safe-haven appeal intensified. Technical analysis indicates a mildly bearish bias for AUD/USD, with the pair tracking under the 20-day middle Bollinger Band near 0.7070 and the RSI retreating toward the mid-40s, signaling fading upside momentum. Immediate resistance is noted at 0.7065, while support levels are at 0.6920 and 0.6880, with a deeper retracement possible toward 0.6800 if bearish momentum persists [1]. Despite these pressures, the Reserve Bank of Australia's recent hawkish stance—raising its Official Cash Rate by 25 basis points to 4.10% at its March meeting, marking the second consecutive hike this year—may help limit further losses for the Aussie [1].
Meanwhile, the USD/CAD pair jumped 0.25% higher to near 1.3760, reaching almost a two-month high. The US Dollar Index (DXY) traded 0.2% higher at 99.35, reflecting broad strength. The Canadian Dollar, while underperforming against the US Dollar, remained firm against other peers, supported by rebounding oil prices following Iran's refusal to de-escalate talks with the US. As Canada is a net oil exporter, energy supply shocks are seen as favorable for the CAD [2].
Market participants are also watching the Federal Reserve, with traders confident that the Fed will either hold interest rates steady or raise them this year amid higher energy prices and supply shocks [2].
CONCLUSION
Escalating Middle East tensions and conflicting US-Iran diplomatic signals have driven the US Dollar higher, pressuring both the Australian and Canadian Dollars. While the RBA's hawkish policy may cushion the AUD, and oil price gains support the CAD, the overall market sentiment remains risk-off, favoring the US Dollar as a safe haven. The situation continues to evolve, with central bank actions and geopolitical developments likely to shape currency movements in the near term.