AUD/USD Weakens as Middle East Risks and Hawkish RBA Focus
The Australian dollar weakened against the US dollar at the start of the Asian session on Wednesday (May 20), with AUD/USD dropping to around 0.7095 and then returning below 0.7100. Pressure stemmed from rising geopolitical uncertainty in the Middle East and persistently high oil prices, which pushed the market to a more defensive stance.
Risk-off sentiment strengthened after US President Donald Trump said a new attack on Iran could occur within days if no deal was reached. Iran stated that the threat would be met with a firm response and that it was prepared to face military aggression. This situation tends to support the USD as a safe-haven asset, thus weighing on the AUD in the short term.
From a regional policy perspective, the People's Bank of China (PBOC) kept its benchmark interest rate (LPR) unchanged (1Y 3.00% and 5Y 3.50%), providing no additional boost to Asian sentiment. Market focus remains on the combination of geopolitical factors and the path of energy inflation, which influence global interest rate expectations.
In Australia, the RBA minutes confirmed a hawkish tone: 8 out of 9 members supported a May interest rate hike to 4.35%, citing rising inflation risks stemming from the conflict in the Gulf. The RBA also assessed that monetary policy cannot prevent near-term price increases as fuel costs trickle down to final prices, while inflation was already above target before the conflict.
Looking ahead, the market will be watching to see whether the USD's safe-haven momentum remains dominant, or whether the AUD is supported by domestic data. The most recent release is the Australian jobs report (April) on Thursday, which has the potential to shift expectations for further RBA policy, particularly amid market sensitivity to energy inflation and shifts in risk sentiment. (Asd)
Source: Newsmaker.id
