The Australian Dollar slipped against its US counterpart on Monday, as escalating geopolitical risks in the Middle East and a surprisingly strong US jobs report combined to boost demand for the safe-haven greenback. The AUD/USD pair fell 0.4% to 0.6490 in early Asian trading, extending losses from the previous week.
Investors moved into the US Dollar after data on Friday showed the US economy added 256,000 jobs in December, well above the 160,000 expected by economists, according to a Reuters poll. The stronger-than-expected reading reinforced the view that the Federal Reserve may hold interest rates higher for longer, a factor that typically supports the currency.
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Geopolitical Risk Weighs on Risk Sentiment
Adding to the Dollar’s strength, renewed hostilities in the Middle East have dampened appetite for risk-sensitive currencies like the Australian Dollar. Over the weekend, reports of fresh airstrikes in the region raised concerns about supply disruptions and broader instability, prompting a shift toward traditional safe havens.
“The combination of a hawkish Fed repricing and heightened geopolitical uncertainty is a powerful tailwind for the US Dollar,” said Jane Foley, senior currency strategist at Rabobank, in a note to clients. “The Australian Dollar, often used as a proxy for global risk appetite, is bearing the brunt of this shift.”
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Market Implications for the Week Ahead
Traders are now eyeing the Reserve Bank of Australia’s next policy meeting, scheduled for early February. While the RBA is widely expected to hold its cash rate steady at 4.35%, the recent run of soft domestic data—including a surprise drop in retail sales—has fueled speculation that the central bank could eventually pivot to easing.
“The RBA is in a tough spot,” said Joseph Capurso, head of international economics at Commonwealth Bank of Australia. “Inflation is still above target, but the economy is clearly slowing. The stronger US jobs report only complicates the outlook for the AUD.”
Key support for AUD/USD lies at the 0.6450 level, a break of which could open the door to a test of the October low near 0.6370. On the upside, resistance is seen at 0.6550.
