The Australian dollar fell against the US dollar on Thursday, snapping a four-day rally, as demand for the Greenback strengthened on renewed geopolitical tensions and higher energy prices. The pair traded around 0.7155 in late dealings after briefly touching 0.7200, its highest level since mid-2022, following Australian employment data.
Us dollar index rebounds on geopolitical tension
The US dollar index climbed to about 98.20 after bouncing from an intraday low of 97.83, its weakest level since early March. The rebound reflected growing risk aversion as markets tracked rising tensions between the United States and Iran and the impact on global trade routes and energy supply.
The shift marks a move back toward capital preservation, with traders rotating out of risk-sensitive currencies such as the Australian dollar and into the world’s primary reserve currency. The dollar index’s recovery to around 98.22 underscores the defensive tone across currency markets.
Strait of Hormuz disruption keeps oil elevated
Officials from Gulf and European countries said a potential US-Iran agreement could take up to six months to finalize, calling for an extension of the ceasefire and the reopening of the Strait of Hormuz to secure energy flows. They warned that prolonged disruption could heighten risks to global food and energy security.
Ship movements through the strait have dropped to about 13% of normal levels, with daily transits down from more than 100 before the conflict to between eight and fifteen. The bottleneck has kept Brent crude prices above $123 per barrel, reinforcing an energy-driven inflation shock rather than an immediate growth scare in market perceptions.
Oil’s sustained strength is also tempering expectations that the Federal Reserve will cut interest rates any time soon, as higher fuel costs feed into inflation forecasts.
Fed expected to hold rates as inflation stays elevated
New York Fed President John Williams said inflation is expected to run between 2.75% and 3% this year, citing upward pressure from energy prices linked to the Middle East conflict. He emphasized that monetary policy remains positioned to respond to further price pressures.
Market pricing in fed funds futures now points to a roughly 99% chance that the Federal Open Market Committee will leave rates unchanged at its April 29 meeting. The conflict-related price shock is limiting scope for policy easing, as rate cuts are seen as incompatible with still-rising inflation.
Talks shift toward temporary US-Iran arrangement
Negotiations between Washington and Tehran have moved toward a temporary deal aimed at preventing further escalation, according to people familiar with the talks. US President Donald Trump said discussions could resume over the weekend and that the current truce may be extended if progress is made, but warned that fighting could resume in the absence of an agreement.
The uncertainty around the talks and the partial blockage of the Strait of Hormuz are keeping risk sentiment fragile, supporting the dollar’s safe-haven bid and weighing on pro-cyclical currencies.
Australian jobs data show slower momentum, steady labor market
In Australia, March labor force figures showed a net gain of 17,900 jobs, below expectations for a 20,000 increase and well down from February’s 49,700 rise. The unemployment rate held at 4.3% for a second straight month, pointing to a labor market that is stable but slowing.
The data support the Reserve Bank of Australia’s cautious stance as it balances the need to contain inflation with maintaining employment. The central bank recently lifted its policy rate to 4.10% and has signaled that external volatility and swings in commodity prices are key risks for the domestic outlook.
Policy constraints and global flows cap aussie upside
The Australian economy’s mixed signals, alongside high global energy prices, complicate the RBA’s policy path. Softer job creation hints at a cooling momentum, even as imported inflation pressures remain elevated.
For markets, this backdrop has created a challenging environment for assets sensitive to global risk appetite and capital flows. The Australian dollar’s advance from its late-March low near 0.6833 to just below 0.7200 — a gain of more than 360 pips — has stalled as geopolitical uncertainty and firm US rates curb further upside.
The currency’s pullback on Thursday underscores how quickly sentiment can reverse when geopolitical tensions flare, with traders retreating to the perceived safety of the US dollar and away from growth-linked currencies.
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