The Australian Dollar (AUD) and New Zealand Dollar (NZD) both weakened against the US Dollar (USD) during early Asian trading hours on Friday, as ongoing tensions in the Middle East continued to boost demand for the safe-haven USD [1][2]. The AUD/USD pair drifted lower to near 0.7200, while NZD/USD held losses around 0.5900 after previously gaining over 1.25% the day before [1][2].
The escalation in Middle East conflict has had significant economic repercussions. In Australia, headline Consumer Price Index (CPI) inflation rose to 4.6% year-on-year in March, primarily due to fuel price shocks linked to the conflict. Although this figure was slightly below the 4.7% forecast, it remains well above the Reserve Bank of Australia’s (RBA) target range, maintaining pressure on the central bank to consider further rate hikes [1]. In New Zealand, the ANZ-Roy Morgan Consumer Confidence Index fell sharply to 80.3 in April from 91.3 in March, marking its lowest level since May 2023. The index has dropped by 20 points over the past two months, a decline attributed to the onset of the Middle East conflict and the resulting surge in energy prices [2]. Additionally, New Zealand’s seasonally adjusted building permits decreased by 1.3% month-on-month in March, reversing a 2.8% gain in February and marking the first contraction since December [2].
Geopolitical developments have further influenced market sentiment. Both sources report that US President Donald Trump reiterated his commitment to maintaining a naval blockade of Iranian ports, amid concerns that the vital Strait of Hormuz may not reopen soon. Trump also criticized congressional efforts to limit his war powers, with the Senate rejecting a related proposal [1][2].
On the monetary policy front, the US Federal Reserve kept its benchmark interest rate unchanged on Wednesday, as expected. Fed Chair Jerome Powell highlighted the high degree of economic uncertainty, specifically citing the Middle East conflict as a contributing factor [2]. Meanwhile, the RBA’s hawkish stance, driven by persistent inflation, could help limit further losses for the AUD in the near term [1].
Market participants are closely watching upcoming data releases, including the US ISM Manufacturing Purchasing Managers Index (PMI) for April, which is due later on Friday [1].
CONCLUSION
Escalating Middle East tensions have strengthened the US Dollar at the expense of both the Australian and New Zealand currencies, as investors seek safe-haven assets. Elevated inflation in Australia and declining consumer confidence in New Zealand underscore the economic impact of the conflict, while central banks remain cautious amid ongoing uncertainty. The market remains focused on further data releases and central bank responses to these evolving risks.