The Australian Dollar (AUD) fell to a two-day low, down 0.39% after the US Dollar (USD) surged again. This was all due to the escalating geopolitical tensions in the Middle East, thus making investors flock to their favorite safe haven currency, the Greenback.
Strait of Hormuz Tensions Trigger Risks, US Dollar Rushed
The fragile peace agreement between the US and Iran appeared to enter a second round of turmoil on Tuesday. During the overlap of the Asian and European market sessions, news agencies reported that two merchant ships had been attacked in the Strait of Hormuz. Crypto market recovery
In response, Washington acted aggressively by re-enforcing sanctions on Iranian oil. The US Central Command (CENTCOM) also reported that they were striking Iranian missile launchers and air defense systems, where the airstrikes are expected to last for several hours.
Impact on financial markets:
Market Sentiment Gloomy: Market mood quickly turned negative, giving the US Dollar an absolute advantage.
Dollar Index (DXY) Strengthens: The DXY index, which measures the strength of the US Dollar against six other major currencies, jumped 0.26% to 101.12, poised to test a two-day high.
US Economic Data Strong, Inflation Expectations Rise Again
In addition to geopolitical factors, the US Dollar also received support from its domestic economic data:
Fed NY Survey: The New York Federal Reserve's Consumer Expectations Survey showed households expect prices to continue to rise. One-year inflation expectations jumped from 3.5% to 3.7% for June.
Trade Balance: The Trade Balance of Goods and Services data for May showed a widening trade deficit. Although it was lower than expected, the figure still exceeded the record set in April.
Given this combination of geopolitical conflict, rising energy prices, and rising inflation expectations, traders now see a 100% chance of the Federal Reserve (Fed) raising interest rates again in 2026.
What about the Australian Dollar (AUD)?
In Australia, the economic calendar this week is relatively quiet with no high-impact data. As such, the Aussie Dollar’s movements are entirely dependent on changes in global market sentiment. If the market remains risk off, the AUD is at risk of further pressure.
For the record, the Reserve Bank of Australia (RBA) has already raised interest rates three times in 2026. Based on the minutes of the last meeting, the Australian central bank has taken a more neutral stance, but they still leave the door open to raising interest rates again if the situation warrants it.
Next Focus: Traders are now awaiting the release of the minutes of the last FOMC meeting as well as the US Initial Jobless Claims data for the week ending July 4 to get a glimpse of the Fed’s next policy direction.
When a crisis hits, commodity currencies like AUD are often the first to fall victim as investors prefer to hold USD cash. Be vigilant with your risk management as the market is expected to remain volatile throughout the week!
