Tensions between the United States and Iran intensified after President Donald Trump extended his self-imposed deadline for direct talks, with Iran declining to send a delegation to the proposed venue in Pakistan [1][2]. The White House described the extension as a final goodwill gesture before reverting to maximum pressure, but markets interpreted it as another postponement in a series of shifting positions [1]. Iranian authorities, according to Iranian TV, do not recognize Trump's ceasefire and may act in accordance with their national interests [2].
The market reaction was mixed across currencies. The US Dollar Index slipped despite stronger-than-expected March Retail Sales, which rose 1.7% month-over-month versus a 1.4% forecast, and hawkish testimony from Fed Chair-designate Kevin Warsh [1]. In contrast, the Australian Dollar weakened during the North American session, falling more than 0.30% as risk sentiment soured and the Greenback's safe-haven appeal increased [2]. The AUD/USD traded at 0.7153 after reaching a daily high of 0.7185 [2]. Meanwhile, USD/JPY climbed 0.37%, settling near 159.40 after reaching as high as 159.65, with the Yen underperforming due to Japan's reliance on imported crude and exposure to potential escalation in the Strait of Hormuz [1].
On the US economic front, Retail Sales surprised to the upside, increasing 1.7% MoM in March from 0.7%, driven by higher gasoline prices and tax refund-related spending, while annual growth held at 4% [2]. The ADP Employment Change 4-week average rose to 54.8K from 39K, reinforcing the strength of the labor market [2].
In Australia, the economic calendar was light, but Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser stated the central bank is focused on preventing a jump in medium-term inflation expectations. This led to increased expectations for further tightening, with 77% odds of a rate hike at the May 4 meeting and another increase seen at the September 28 meeting, according to Prime Terminal data [2].
Technical analysis for USD/JPY shows the pair holding a mild bullish intraday bias above the day’s open at 158.88, with support at 159.41 and further floors at 158.88 and 158.20. The short-term uptrend remains intact as long as the pair stays above the 50-day and 200-day EMAs [1]. For AUD/USD, the uptrend stalled around 0.7180, with the pair moving towards 0.7150. The RSI has begun to turn south, suggesting further consolidation, with key support at 0.7129 and resistance at 0.7187 and 0.7221 [2].
CONCLUSION
Escalating US-Iran tensions and the failure of diplomatic talks have driven safe-haven flows into the US Dollar, pressuring both the Japanese Yen and Australian Dollar. Strong US economic data and expectations of further RBA tightening were overshadowed by geopolitical risks, resulting in heightened volatility and a risk-off tone in currency markets.