AUD/USD traded in a tight range on Thursday, hovering in the mid-0.6900s in early European hours. It stayed just above its lowest level since early February, which was set on Monday. Risk appetite remained weak despite US President Donald Trump’s ceasefire comments. Iran rejected claims of talks, said there was no chance of a deal, and turned down a 15-point US ceasefire proposal while setting wider demands.

Middle East Risks Support The Dollar

The US deployment of extra troops added to fears of escalation in the Middle East. This supported the US Dollar and weighed on AUD/USD. Pressure on Iran’s energy infrastructure and the effective closure of the Strait of Hormuz pushed WTI crude back above $91.00. Higher oil prices raised inflation concerns, lifting expectations of tighter central bank policy, including from the US Federal Reserve. US Treasury yields rose, adding support for the US Dollar and limiting help from hawkish remarks by RBA Assistant Governor Christopher Kent. Kent said the Iran war tightens financial conditions, raises risks of an inflation spiral, and policy must cap inflation while aiming for low, stable inflation and full employment. China’s defence ministry called for an end to military action and said it would work to de-escalate. The report was corrected on March 26 at 10:27 GMT to note Monday as the weekly low.

Comparisons With Last Year

We’re seeing the AUD/USD pair struggle below 0.6600, a situation that feels very familiar. It reminds us of this time last year, in March 2025, when the pair was under similar pressure from the US-Iran conflict. Today, renewed tensions in the South China Sea are creating a similar risk-off environment, weighing on the Aussie dollar. Last year, the key driver was the US dollar’s role as a safe haven amid escalating Middle East tensions. That dynamic appears to be repeating, as derivative traders should consider that any flight to safety will likely benefit the greenback. This suggests positioning for downside in AUD/USD through puts or selling futures contracts could be a prudent strategy. In 2025, we saw WTI crude oil surge past $91, fueling concerns about inflation and a hawkish Federal Reserve. With Brent crude now hovering near $90 a barrel and the latest US CPI data showing a sticky 3.4%, the Fed has little reason to soften its stance. This reinforces the case for a stronger dollar, making short positions on the AUD/USD pair more attractive. A direct consequence of this inflation outlook, both then and now, is the movement in US Treasury yields. Just as yields rose in 2025, the US 10-year note is currently pushing back towards 4.5%, widening its premium over Australian government bonds. This yield differential continues to pull capital towards the US, acting as a significant headwind for the Aussie. We recall how the RBA’s hawkish comments in 2025 were overshadowed by overwhelming global factors. Today, even with the RBA holding its cash rate at 4.35%, its policy is perceived as less aggressive than the Fed’s, which is still contending with higher inflation. Therefore, any attempt by the AUD/USD to rally is likely to be met with selling pressure, presenting opportunities to enter short positions. Create your live VT Markets account and start trading now.

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