On Thursday, heightened geopolitical tensions stemming from the ongoing conflict between Iran and Israel triggered significant moves in global currency markets. The Australian Dollar (AUD) fell sharply, down 0.75% to near 0.6875 against the US Dollar (USD), marking it as the weakest major currency in the European trading session. This decline was attributed to revived risk-off sentiment following US President Donald Trump's address, in which he threatened intensified military actions against Iran over the next two to three weeks, including targeting Iranian electricity infrastructure. Trump stated, 'We are going to hit them extremely hard over the next two to three weeks, and bring them back to the stone ages' [1].
The US Dollar Index (DXY), which tracks the Greenback against six major currencies, rose 0.6% to near 100.15, reflecting increased safe-haven demand amid the geopolitical uncertainty [1]. S&P 500 futures also dropped over 1% in European trade, underscoring weak appetite for risk-sensitive assets [1].
Meanwhile, the USD/JPY pair surged about 0.6% on Thursday, reaching session highs at 159.70 and approaching the critical 160.00 level, which is considered a threshold for potential Japanese government intervention. The pair rebounded after President Trump's aggressive rhetoric, which rattled markets and prompted Tehran to threaten 'devastating attacks' on the US and Israel, while dismissing US proposals to end the war as 'maximalist and irrational.' The conflict has now entered its 34th day, with ongoing missile and drone exchanges between Iran and Israel [2].
Japanese authorities have signaled readiness to intervene if speculative moves persist. Vice Finance Minister for International Affairs, Atsushi Mimura, stated Tokyo is prepared to take 'decisive' action, while Finance Minister Satsuki Katayama noted 'speculative moves heightening in currency markets' and reiterated the government's 'readiness to respond' to volatile moves [2]. The Bank of Japan may intervene during periods of low trading volume, such as Good Friday, especially with the US Nonfarm Payrolls report scheduled, which could further increase market volatility [2].
Investors are also awaiting the US Nonfarm Payrolls data for March, set to be released on Friday, as it may provide fresh cues on the Federal Reserve's monetary policy outlook [1][2].
CONCLUSION
Escalating tensions in the Middle East have driven a risk-off shift in global markets, boosting the US Dollar while weighing heavily on the Australian Dollar and Japanese Yen. With authorities in Japan signaling possible intervention and investors awaiting key US economic data, currency volatility is expected to remain elevated in the near term.