Australian Dollar Weakens on Middle East Tensions

2026-03-02 00:54 By Czyrill Jean Coloma 1 min. read

The Australian dollar slipped to around $0.70 on Monday, erasing last week’s gains as investors sought safe-haven assets like the greenback amid escalating conflict in the Middle East.

The US and Israel carried out coordinated strikes on Iran over the weekend, resulting in the death of Iran’s Supreme Leader, Ayatollah Ali Khamenei.

Iran responded with retaliatory attacks targeting US assets in neighboring countries, rattling global financial markets.

Heightened geopolitical uncertainty weighed on risk-sensitive currencies, including the Aussie, which is often seen as a proxy for global growth and commodity demand.

Domestically, the manufacturing PMI was revised down to 51 in February 2026 from a preliminary reading of 51.5, marking the lowest level in four months and easing from 52.3 in the previous month.

Meanwhile, the Melbourne Institute’s Monthly Inflation Gauge fell 0.2% month-on-month in February, reversing a 0.2% rise in January and marking the first decline since last August.



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Australian Dollar Weakens on Middle East Tensions
The Australian dollar slipped to around $0.70 on Monday, erasing last week’s gains as investors sought safe-haven assets like the greenback amid escalating conflict in the Middle East. The US and Israel carried out coordinated strikes on Iran over the weekend, resulting in the death of Iran’s Supreme Leader, Ayatollah Ali Khamenei. Iran responded with retaliatory attacks targeting US assets in neighboring countries, rattling global financial markets. Heightened geopolitical uncertainty weighed on risk-sensitive currencies, including the Aussie, which is often seen as a proxy for global growth and commodity demand. Domestically, the manufacturing PMI was revised down to 51 in February 2026 from a preliminary reading of 51.5, marking the lowest level in four months and easing from 52.3 in the previous month. Meanwhile, the Melbourne Institute’s Monthly Inflation Gauge fell 0.2% month-on-month in February, reversing a 0.2% rise in January and marking the first decline since last August.
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Aussie Dollar Eyes 4th Monthly Gain
The Australian dollar traded around $0.711 on Friday, moving near more than three-year highs, and headed for its fourth consecutive monthly gain amid mounting bets of a hawkish policy outlook. The currency is on track to rise about 2% in February and is up more than 6% year-to-date, making it the top-performing G10 unit as resilient domestic conditions bolster expectations for further tightening by the Reserve Bank. Money markets are assigning roughly an 80% chance of a rate hike in May following an upside surprise in January inflation, with 40 basis points of total tightening this year. Still, many economists see the cash rate peaking near 4.10%, close to levels reached during the post-pandemic inflation cycle. Governor Michele Bullock also reiterated that patience remains appropriate with the economy near balance, tempering expectations of an aggressive hiking path. Investors now look to next week’s final manufacturing PMI and GDP figures for clearer signals on growth momentum.
2026-02-27
Australian Dollar Hovers 3-Year Highs
The Australian dollar traded around $0.710, hovering near its highest level in more than three years amid mounting expectations of another rate hike. Markets are pricing in roughly an 80% probability that the Reserve Bank will lift its 3.85% cash rate in May after January inflation surprised on the upside. Markets also anticipate about 40 basis points of total hikes this year, though many analysts see the terminal rate near 4.10%, around the peak reached during the post-pandemic inflation surge. Meanwhile, a move as soon as March appears less likely, as policymakers will not receive the full first-quarter inflation report until late April. RBA Governor Michele Bullock also reiterated that policy patience is warranted with the economy close to equilibrium, tempering expectations of an aggressive tightening cycle. Attention now turns to the final reading of manufacturing PMI and GDP figures due next week for further clues on the country’s economic momentum.
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