AUD/USD remains under pressure as geopolitical risks support the US Dollar

• AUD/USD trades around 0.6920, holding near its lowest level since early February.
• The US Dollar is supported by safe-haven demand and rising US Treasury yields.
• Markets largely ignore the RBA’s hawkish tone, reinforcing the bearish outlook.

AUD/USD trades around 0.6920 on Thursday at the time of writing, down 0.35% on the day, and remains close to its monthly lows amid a bearish consolidation phase. The pair struggles to stage any meaningful rebound as the US Dollar (USD) continues to draw solid support.

Market sentiment remains fragile despite conciliatory remarks from US President Donald Trump, as Iran has rejected any prospect of negotiations and dismissed a ceasefire proposal. Persistent tensions in the Middle East, combined with additional US troop deployments, are fueling fears of further escalation. In this context, the US Dollar benefits from its safe-haven status, weighing on the Australian Dollar (AUD).

At the same time, the energy situation is adding to global inflationary pressures. The effective closure of the Strait of Hormuz is pushing Oil prices higher, reinforcing expectations that major central banks, including the Federal Reserve (Fed), will maintain a hawkish stance. This dynamic is driving US Treasury yields higher, further supporting the Greenback.

On the domestic front, comments from Reserve Bank of Australia (RBA) Assistant Governor Christopher Kent failed to provide support to the currency. Although he highlighted inflation risks linked to rising energy prices and stressed the need to maintain restrictive monetary conditions, the market reaction remained muted. This lack of traction reflects growing concerns about the domestic economic outlook.

According to economists at Commerzbank, Australia is facing a stagflation dilemma, with slowing growth and energy-driven inflation pressures. They note that consumer confidence has dropped sharply while Services Purchasing Managers Index (PMI) indicators have slipped into contraction territory, complicating the central bank’s policy path. Markets still price in around a 54% chance of a rate hike in May, according to the economists.

Over the longer term, Rabobank maintains a more constructive view. The bank argues that Australia’s status as a net energy exporter could support its terms of trade in the current environment, potentially allowing AUD/USD to return to the 0.71 area over a three- to six-month horizon, and to 0.72 over twelve months.

In the near term, however, the combination of a resilient US Dollar driven by safe-haven flows, elevated US yields, and a lack of supportive domestic catalysts suggests that the bearish bias for the pair is likely to persist.