Australian Dollar Rebounds from 2-Month Low

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.

The Australian dollar weakened further to around $0.685, down for a seventh straight session to hit its lowest since January 23 as a sharp rise in energy prices amid ongoing Middle East tensions clouded the global economic outlook and pushed investors toward the safety of the US dollar. The Aussie also fell 2.1% last week, its worst weekly performance since April 2025, and on track for a roughly 3.8% monthly decline, the steepest since December 2024. Oil prices continued to climb as the conflict in Iran entered its fifth week, with renewed attacks in the region increasing risks to global energy supply. In response, Australia's Prime Minister Anthony Albanese announced a temporary cut to fuel taxes to help ease cost pressures, underscoring the broader impact of rising energy prices on the economy. Focus now turns to the release of the RBA’s latest meeting minutes after a narrow vote to lift rates to 4.1%, as policymakers balance persistent inflation against a softening growth outlook.