The Australian Dollar weakened on Tuesday, sliding approximately 0.25% against the US Dollar, as market sentiment soured amid escalating geopolitical tensions following threats of retaliatory actions by President Trump against Iran. The AUD/USD exchange rate stood at 0.7027 after dipping to a six-week low of 0.7005 earlier in the session.
The downturn in market mood was largely attributed to developments in the Middle East, where Trump indicated a military response to an Iranian incident that resulted in a downed helicopter in the Strait of Hormuz. He announced on social media that US Central Command had initiated strikes on Iran as a form of retaliation. This increase in tensions has raised concerns about a potential military escalation, contributing to a cautious environment for traders.
Oil prices faced a decline, with West Texas Intermediate (WTI) crude futures dropping nearly 3% to close the session lower. Although the US Dollar saw some recovery and finished the day nearly unchanged, the US Dollar Index (DXY) reflected underlying volatility in the currency markets.
Adding to the market’s anxiety, the latest data showed a decline in the NFIB Small Business Optimism Index, which fell to 95.3—below its 52-year average of 98.0. This indicates a decrease in confidence among businesses regarding the economic outlook. The survey indicated that 34% of the firms surveyed intended to raise prices in the upcoming months, and small businesses have scaled back hiring plans as labor shortages loom in sectors like agriculture and wholesale trade.
Attention is now focused on the impending release of the US Consumer Price Index (CPI) for May, expected on Wednesday, as it may provide insights regarding the impact of the renewed US-Iran conflict on inflation figures.
In a recent survey by Reuters, a significant majority of economists—nearly 70% of 102 respondents—predicted that the Federal Reserve would maintain its current interest rates for the remainder of the year. Many anticipate the Fed Funds rate to remain within the 3.50%-3.75% range, despite money markets pricing in possible rate hikes by the year’s end. However, some members of the Federal Open Market Committee have hinted that an increase in rates might be necessary later this year.
In Australia, consumer sentiment took another hit in June due to persistent inflationary pressures and rising gasoline prices impacting household budgets. However, the National Australia Bank (NAB) survey indicated that business conditions had stabilized in May. Economists from NAB have adjusted their expectations concerning further monetary tightening by the Reserve Bank of Australia (RBA), forecasting that the cash rate may peak at the current level of 4.35%, moving away from earlier expectations of another 25 basis point hike in August.
From a technical analysis standpoint, the AUD/USD maintains a bearish near-term trend, trading around 0.7024 and remaining below the clustered 50-, 100-, and 200-day Simple Moving Averages, situated around 0.7132. The pair is currently testing an upward support trend line, which suggests that the broader uptrend may be under pressure. The Relative Strength Index (RSI) near 36 indicates potential for further downside momentum, although the currency has yet to reach oversold conditions.
On the currency front, the Australian Dollar also reflected varying strengths against other major currencies, with its strongest performance noted against the Japanese Yen. The accompanying table reveals the percentage fluctuations of the Australian Dollar against key currencies, underscoring its mixed performance in the market.
