AUD Falls as Escalating Middle East Conflict Boosts Demand for USD

The Australian Dollar fell against the US Dollar on Tuesday, retreating by 0.29% as the escalating Middle East conflict boosted demand for the Greenback due to its haven appeal. The AUD/USD traded at 0.7146.

Oil prices extended their losses amid ongoing attacks between the US and Iran, despite a warning from President Trump that any retaliation would result in 'total destruction' for Tehran. The energy-driven inflation has led to rising US Treasury yields, with the 10-year benchmark note increasing by over 4 basis points to 4.796%.

The Federal Reserve's next move is now being closely watched, with a nearly 72% chance of a 25-basis-point rate hike priced in due to inflation concerns. Fed Governor Michael Barr stated that he would be prepared to raise rates if inflation does not moderate soon, given the 'stable' labour market and low Unemployment Rate.

Looking ahead, key data points such as US jobs reports and Australia's GDP figures will drive market sentiment. The Australian economy is expected to expand by 0.3% QoQ in the second quarter of 2026, with some economists forecasting a slowdown from 2.5% to 1.8% YoY.