On Thursday, the US Dollar continued to gain strength against major currencies, notably the Australian Dollar, as geopolitical tensions between the United States and Iran intensified. The AUD/USD pair traded around 0.6920, down 0.35% on the day and near monthly lows, reflecting a bearish consolidation phase. The US Dollar Index (DXY) held firm near 99.75, marking its third consecutive day of gains, supported by safe-haven flows amid persistent Middle East tensions and additional US troop deployments. Iran rejected a ceasefire proposal and dismissed prospects for negotiations, while US officials reportedly considered military options targeting Iranian positions, including Kharg Island and strategic locations around the Strait of Hormuz [1][2].
Rising oil prices, driven by the effective closure of the Strait of Hormuz, have contributed to global inflationary pressures. This has reinforced expectations that the Federal Reserve will maintain a hawkish stance, with markets now anticipating the Fed to keep rates on hold through 2026, rather than implementing at least two cuts as previously expected. A Reuters poll showed that 61 out of 82 economists expect the Fed to leave rates unchanged in the next quarter, while opinions are split on the outlook for end-2026, with 28 expecting one rate cut and 37 anticipating two cuts [2]. Elevated US Treasury yields have further supported the Greenback, and the US Dollar was the strongest against the Australian Dollar according to daily percentage change tables [1][2].
On the Australian front, comments from Reserve Bank of Australia (RBA) Assistant Governor Christopher Kent highlighted inflation risks linked to rising energy prices and the need for restrictive monetary conditions, but failed to boost the currency. Economists at Commerzbank noted Australia faces a stagflation dilemma, with slowing growth and energy-driven inflation pressures, as consumer confidence has dropped sharply and Services PMI indicators have slipped into contraction territory. Markets price in around a 54% chance of a rate hike in May. Rabobank, however, maintains a constructive longer-term outlook, suggesting Australia’s net energy exporter status could support AUD/USD to return to the 0.71 area in three to six months, and to 0.72 over twelve months [1].
US Initial Jobless Claims were reported at 210K for the latest week, in line with expectations but slightly higher than the previous reading of 205K. The four-week average dipped slightly to 210.5K from 210.75K, indicating a stable labor market backdrop [2].
In summary, the combination of heightened geopolitical risks, rising oil prices, and fading Fed rate cut bets has driven the US Dollar higher, exerting downward pressure on the Australian Dollar. The near-term outlook remains bearish for AUD/USD, with safe-haven flows and elevated US yields likely to persist [1][2].
CONCLUSION
Escalating US-Iran tensions and rising oil prices have reinforced the US Dollar's safe-haven appeal, pushing it higher against the Australian Dollar and other major currencies. Hawkish Fed expectations and muted domestic catalysts for Australia suggest continued bearish momentum for AUD/USD in the near term. Market participants remain focused on geopolitical developments and central bank policy signals, which are likely to drive further volatility.