China's RatingDog Services Purchasing Managers' Index (PMI) declined to 52.1 in March from 56.7 in February, missing the consensus forecast of 53.7, according to data published by RatingDog on Friday [2][3]. Despite the weaker-than-expected PMI, which signals a slowdown in the expansion of China's services sector, the Australian Dollar (AUD) advanced, with AUD/USD trading around 0.6910 during Asian hours and gaining 0.11% on the day [2][3]. This move came even as risk aversion increased due to escalating tensions in the Middle East, which have driven up oil prices and contributed to safe-haven demand for the US Dollar [1][2].
US President Donald Trump highlighted the destruction of a bridge in Tehran and warned of further action, urging Iran to make a deal "before it is too late." Iran's Foreign Minister Abbas Araghchi responded that US strikes on civilian infrastructure would not force Iran to retreat, stating they signal the "defeat and moral collapse of an enemy in disarray" [1][2]. These geopolitical developments have contributed to higher energy prices, which markets caution may push inflation higher and prompt downward revisions to growth forecasts [2].
In Australia, expectations of further Reserve Bank of Australia (RBA) rate hikes have risen amid rising stagflation risks. As of April 1, ASX 30 Day Interbank Cash Rate Futures for May 2026 were at 95.785, implying a 55% probability of a rate hike to 4.35% at the next RBA meeting [2]. Chicago Fed President Austan Goolsbee expressed concern over rising oil prices, noting they could complicate efforts to curb inflation, particularly if gasoline costs surge and lift inflation expectations [2].
Despite the downbeat Chinese data, the AUD's resilience suggests that other factors, such as expectations of RBA tightening and the impact of higher commodity prices, are supporting the currency. The subdued trading activity due to the Good Friday holiday may also be influencing market movements [2][3].
CONCLUSION
China's services sector growth slowed more than expected in March, but the Australian Dollar managed to gain ground, supported by expectations of RBA rate hikes and higher commodity prices. Escalating Middle East tensions and rising oil prices are adding to inflation concerns and market caution. Overall, the market reaction has been mixed, with the AUD showing resilience despite weaker Chinese data and increased global risk aversion.