The US Dollar strengthened significantly against both the Australian Dollar (AUD) and New Zealand Dollar (NZD) following hawkish statements from Federal Reserve officials and renewed hostilities in the Middle East. The AUD/USD pair dropped approximately 0.70% on Wednesday, trading at 0.7128 after peaking at 0.7181, as investors sought safety amid US-Iran strikes around the Strait of Hormuz and attacks on US assets in Kuwait, the UAE, and Saudi Arabia. The US Central Command reported attacks on missile launch sites, Iranian boats, and Qeshm Island in response to Iranian actions [1].
Meanwhile, the NZD/USD pair plunged more than 1% on Thursday, trading near 0.5860, as the US Dollar gained strength following remarks from Dallas Fed President Lorie Logan, who stated that inflation is taking too long to return to the Fed's 2% target and warned that higher interest rates could be necessary later this year. Logan also noted that financial conditions remain accommodative, the labor market is stable, and economic activity continues to show resilience, reinforcing expectations for a prolonged restrictive policy stance [2]. New York Fed President John Williams commented that monetary policy is "exactly in the right place" and sees no need to raise or lower interest rates at this time [1].
US economic data further supported the Greenback. The ADP National Employment Change Report showed private companies hired 122K in May, beating the forecast of 117K [1]. The ISM Services PMI rose from 53.6 to 54.5, with the Prices Paid component increasing from 70.7 to 71.3, indicating that the energy shock is spreading to services [1][2]. The JOLTS report also showed increased job openings, signaling labor market resilience ahead of Friday's Nonfarm Payrolls report, which investors are closely watching for further policy clues [1][2].
Australian economic data revealed a slowdown, with Q1 2026 GDP expanding 0.3% quarter-on-quarter, down from 0.9% in the previous quarter and below estimates for a 0.5% expansion. The slowdown may worsen as Middle East conflict and Reserve Bank of Australia (RBA) policy tightening weigh on household spending [1]. Traders are awaiting the Australia Trade Balance for April and a speech from RBA Governor Michele Bullock [1].
Technical analysis shows AUD/USD trading at 0.7130, just above a cluster of simple moving averages around 0.7117, with fading bullish momentum as the Relative Strength Index (RSI) slips toward the mid-40s [1]. NZD/USD trades at 0.5864, below key moving averages, with the RSI in oversold territory near 27, suggesting dominant bearish pressure but a risk of corrective bounce [2].
CONCLUSION
Hawkish Fed remarks and robust US economic data, combined with escalating Middle East tensions, have triggered sharp declines in both AUD/USD and NZD/USD, reflecting a strong flight to safety into the US Dollar. The market impact is high, with investors closely watching upcoming US Nonfarm Payrolls and Australian trade data for further direction. Near-term sentiment remains negative for both AUD and NZD amid persistent US Dollar strength and geopolitical uncertainty.