Aussie Dollar Extends Fall to 1-Week Low

The Australian dollar fell to around $0.69 on Monday, extending last week’s losses and hitting its lowest level in over a week, as a stronger greenback and declining Asian stocks weighed on the risk-sensitive currency. The greenback drew broad support from safe-haven demand amid escalating tensions in the Middle East. US President Trump threatened strikes on Iranian power plants if the Strait of Hormuz remains closed, while Tehran warned it would target key US and Israeli assets. Adding to the Australian dollar’s pressure were falling Asian stocks, reflecting growing concerns about the broader economic fallout from the Middle East conflict and dampening appetite for the commodity-linked Aussie. Domestically, investors now await Wednesday’s inflation data following the RBA’s narrowly approved rate hike to 4.1%. It marked the first back-to-back interest rate increase since mid-2023 and reversed two of last year’s three cuts as the RBA seeks to rein in persistent inflation.

The Australian dollar held its recent gains around $0.708 and is set for its biggest weekly advance since mid-January as surging oil prices amid the expanding Middle East war fueled inflation concerns and raised the risk of further RBA tightening. The Reserve Bank on Thursday already warned that the conflict was a material risk to the domestic economy. Governor Michele Bullock also repeatedly warned about persistent inflation risks, adding that the board remains uncertain whether policy is sufficiently restrictive. A relatively strong jobs report further reinforced the central bank’s view that the economy can withstand tighter policy. This follows back-to-back interest rate hikes by the RBA earlier this week. Markets are still divided on a potential move as soon as May, while an August hike is fully priced in. Meanwhile, following strikes by Tehran across the Gulf, investors weighed signals from the US and Israel indicating restraint in further attacks on Iranian energy infrastructure.

The Australian dollar edged up to around $0.704 on Thursday, after losing more than 1% in the previous session, as investors assessed the latest jobs report. Data showed employment surged by 48,900 in February, well above the forecasted 20,000 gain, underscoring continued labor market resilience. However, the unemployment rate unexpectedly climbed to 4.3%, pointing to a more mixed picture. Still, the rate remains historically low and reinforced the Reserve Bank’s view that the economy can withstand tighter policy. Although they did little to shift rate expectations, with markets still divided on whether another hike could come as soon as May. Meanwhile, the central bank warned that the escalating Middle East war poses material risk to the domestic economy and signaled a more severe global shock, with persistently high inflation likely to add pressure on some households and borrowers. But they also emphasized that Australia’s financial system remains broadly resilient.