The US Dollar Index has firmed, supported by higher US yields and renewed geopolitical tensions, which have increased safe-haven demand for the currency [1][2]. President Trump has proposed new tariffs of at least 10% on imports from 60 trading partners, including Canada, Mexico, the EU, Taiwan, and the UK, while goods from China, India, Japan, South Korea, Brazil, and Switzerland would face a 12.5% rate. These tariffs are not immediate and will undergo public comment and hearings before finalization, leaving room for changes [1]. The move has heightened trade tensions and raised inflation risks, reinforcing USD support. FX inflows have favored USD, JPY, MXN, ZAR, EUR, and GBP, while outflows were concentrated in DKK, CAD, NZD, TRY, BRL, and CLP [1].
Market sentiment remains risk-off, with continued equity outflows and sustained demand for core government bonds. The third consecutive day of oil price rises has left global shares lower and US equity futures weaker, with the escalation in the US-Iranian conflict again driving bond yields and USD higher [1]. President Trump stated that Iran has agreed not to acquire nuclear weapons, while discussions with Iranian authorities remain ongoing [2].
In Australia, the AUD/USD pair trades around 0.7145, down 0.50% on the day, pressured by disappointing economic indicators and firm US data [2]. Australian Q1 GDP expanded by 0.3% quarter-on-quarter, down from a revised 0.9% in the previous quarter and below market expectations of 0.5%. On an annual basis, GDP grew by 2.5%, missing the consensus forecast of 2.7% [2]. The unemployment rate in Australia has risen to its highest level in about four and a half years, and softer recent inflation data has reduced the need for further monetary tightening. UOB expects the Reserve Bank of Australia to keep its cash rate at 4.35% for an extended period, while TD Securities believes one final 25-basis-point rate hike remains possible later this year [2].
US economic data released on Wednesday further supports the Greenback. The ISM Services PMI rose to 54.5 in May from 53.6 in April, beating market expectations of 53.8, and the Prices Paid component increased to 71.3 from 70.7, signaling elevated inflationary pressures [2]. The ADP report showed US private employment increased by 122K jobs in May, above expectations of 117K, highlighting labor market resilience [2]. These figures largely offset the slight disappointment from the S&P Global Services PMI, which was revised down to 50.7 in May from 50.9 [2].
The strength of the US Dollar, fueled by robust US economic data, tariff proposals, and a risk-averse market environment, continues to dominate market sentiment and keeps downward pressure on AUD/USD [1][2].
CONCLUSION
The US Dollar is benefiting from a combination of tariff proposals, strong economic data, and heightened geopolitical tensions, leading to increased safe-haven demand and inflows. Meanwhile, the Australian Dollar is under pressure due to disappointing GDP figures and a cautious outlook from the Reserve Bank of Australia. Market sentiment remains risk-off, with the USD expected to stay supported in the near term.