On Tuesday, the AUD/USD pair experienced a sharp decline, trading around 0.6950, as heightened geopolitical tensions in the Middle East triggered a wave of risk aversion across global markets, bolstering demand for safe-haven assets such as the US Dollar (USD) [1]. US President Donald Trump announced a five-day delay regarding a deadline linked to the Strait of Hormuz and described constructive discussions with Tehran, though Iranian officials denied any negotiations. Meanwhile, fresh Israeli strikes on Tehran increased fears of a prolonged conflict, prompting investors to reduce risk exposure and move into the Greenback [1].
The US Dollar strengthened against major peers, while risk-sensitive currencies like the Australian Dollar (AUD) came under pressure. The latest preliminary S&P Global data in the US showed the Manufacturing PMI rising to 52.4 in March from 51.6 in February, beating expectations, while the Services PMI eased to 51.1 from 51.7. The Composite PMI declined to 51.4, its lowest since April last year, marking a second consecutive month of slowing growth [1]. In Australia, weak domestic fundamentals further weighed on the Aussie, with the Composite PMI dropping to 47 in March, returning to contraction territory after eighteen months of expansion, driven by a sharp decline in the services sector [1]. Despite the Reserve Bank of Australia (RBA) raising its policy rate to 4.10%, tighter monetary policy has not offset the downside pressure from global risks [1].
Market attention is now focused on upcoming inflation data in Australia, due Wednesday, though sentiment remains dominated by geopolitical risks [1]. The Australian Dollar was the weakest against the US Dollar today, with a 0.69% decline, and the Japanese Yen was the strongest against the Australian Dollar [1][2].
In related currency markets, GBP/JPY traded near 212.50 with a mild downside bias as the British Pound (GBP) weakened following weaker-than-expected UK business activity data. The UK Composite PMI fell to 51.0 from 53.7, missing expectations and marking a six-month low, while the Services PMI dropped sharply to 51.2 from 53.9. The Manufacturing PMI edged down to 51.4 from 51.7, slightly beating expectations [2]. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, attributed the slowdown to the war in the Middle East, which has stalled UK growth and driven inflation higher [2]. The Bank of England (BoE) kept rates unchanged at 3.75% last week, warning that the conflict is likely to push inflation higher through rising energy costs. Traders now fully price in two rate hikes by year-end, a shift from earlier expectations of policy easing [2]. BoE Chief Economist Huw Pill stated the Bank is ready to act if necessary to contain lasting inflationary pressures [2].
On the Japanese side, the Yen found support despite softer inflation data, with Japan’s National CPI rising 1.3% YoY in February, easing from 1.5%, and core inflation slowing to 1.6% from 2.0%, below the BoJ’s 2% target. The BoJ kept its policy rate unchanged at 0.75% last week and reiterated its commitment to raising rates if economic and price conditions evolve as forecasted [2].
CONCLUSION
Heightened geopolitical tensions and weak PMI data have driven risk aversion, strengthening the US Dollar and Japanese Yen while weighing on risk-sensitive currencies like the Australian Dollar and British Pound. Market focus remains on upcoming inflation data and central bank policy responses, with sentiment likely to stay cautious amid ongoing Middle East conflict. The overall market takeaway is a shift toward safe-haven assets and expectations of tighter monetary policy in response to inflation risks.