Australian Dollar Holds Gains

The Australian Dollar was little changed to around $0.691 on Friday amid thin holiday trading volumes, but on track for a modest weekly rise on hopes of de-escalation in the Middle East war and that the Strait of Hormuz could partially reopen. Reports showed that Iran and Oman are drafting a protocol to monitor tanker traffic through the key oil-shipping route, which has been effectively shut since the start of the war. The plan would place transit under joint supervision and could require ships to pay tolls to Tehran. Meanwhile, President Trump’s latest speech offered little clarity on a swift end to the Iran conflict, though he has previously set a two-to-three-week timeline for ending the war. He also issued fresh threats on Iranian infrastructure in a bid to pressure Tehran in negotiations. In Australia, higher energy costs are already set to lift inflation, forcing downgrades to growth forecasts and raising expectations of further rate hikes as stagflation risks increase.

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.