Australian Dollar Steady on Rate Hike Bets

The Australian dollar fell below $0.693 on Thursday, slipping back toward two-month lows as the US dollar firmed and oil prices rose after President Trump’s remarks on the Iran war. Trump said Washington’s core objectives in the conflict were close to being achieved but gave no clear timeline for ending the war, while warning that the US could still strike Iran “extremely hard” over the next two to three weeks. Hopes of an imminent end to the month-long conflict had earlier supported global equities and weighed on the dollar, but his remarks reversed sentiment, sending stocks lower again. Meanwhile, strong domestic trade data limited the downside. Data showed Australia’s trade surplus more than doubled in February, marking the largest in seven months as gold and farm exports jumped, while imports of gold and data processing equipment eased. Elsewhere, tariff concerns resurfaced as the Trump administration prepared a 25% levy on finished goods containing imported steel and aluminum.

The Australian dollar rose to around $0.692, rebounding from a two-month low, supported by hopes for de-escalation of Middle East tensions. Global risk sentiment improved after Trump said the US could end its military attacks on Iran within two to three weeks and is set to address the nation later in the day, fueling speculation of a potential wind-down in the conflict. However, uncertainty persisted as reports suggested the US may deploy additional naval forces to the region, while concerns over the Strait of Hormuz kept oil prices supported amid fears of prolonged supply risks. The inflation impact of higher energy costs continued to cloud the outlook, with analysts warning it could keep prices elevated for longer and increase pressure on interest rates in Australia. The Reserve Bank, which raised rates to 4.10% in March, remains in focus, with markets pricing roughly a 65% chance of another hike at its May meeting, though expectations for the peak rate have eased slightly.

The Australian dollar held around $0.686 on Tuesday, trading near a two-month low and on track for a roughly 3.6% decline in March, marking the worst monthly performance since December 2024. The Aussie held up for much of the month due to higher interest rates, but has started to crack in recent sessions as market concerns shift from inflation to global growth. Minutes from the Reserve Bank of Australia’s March meeting also signaled uncertainty on the future path for interest rates after two rate hikes this year, due to concerns over the Middle East war. The board acknowledged the need to balance the material bearing of a longer conflict on both inflation and economic activity. Markets currently imply a 60% chance of another rate hike in May, with around 65 bps of additional tightening this year. First-quarter inflation data, labor market figures, and monthly consumer spending indicators are still due in April before the next policy meeting, all set to guide the RBA’s next move.