The Australian Dollar (AUD) faced selling pressure against both the US Dollar (USD) and Japanese Yen (JPY) on Wednesday, following the release of softer-than-expected inflation data and ongoing geopolitical tensions in the Middle East. The AUD/USD pair traded 0.3% lower near 0.6975 during the late Asian session, underperforming its peers despite improved market sentiment, as reflected by S&P 500 futures rising 0.8% to around 6,610 in Asian trade [1]. Meanwhile, the AUD/JPY cross extended its decline to near 110.85 in the early European session, with the AUD softening amid uncertainty surrounding US-Iran talks [2].
Data from the Australian Bureau of Statistics showed that the Consumer Price Index (CPI) rose by 3.7% year-on-year in February, below both the previous reading and market consensus of 3.8%. On a monthly basis, CPI was flat at 0%, compared to 0.4% growth in January, matching market expectations [1][2]. This slight slowdown in inflation is not expected to significantly alter market expectations for the Reserve Bank of Australia's (RBA) monetary policy outlook, as it does not reflect the impact of recent energy price surges amid Middle East conflicts [1].
Geopolitical developments also weighed on the AUD. The Iranian military reportedly fired missiles at Israel and US bases in Kuwait, Jordan, and Bahrain, while the US sent Iran a 15-point plan to end the war in the Middle East [2]. Although the US is pursuing a month-long ceasefire plan with Iran, Iran continues to deny involvement in negotiations regarding de-escalation [1][2]. Signs of prolonged conflict could boost safe-haven currencies such as the JPY and act as a headwind for AUD crosses, though easing tensions might help limit the Aussie's losses [2].
Technical analysis for AUD/USD indicates a neutral-to-bearish bias, with the pair trading near the 50-day EMA just below 0.70. The 14-day RSI has retreated toward the mid-40s, signaling fading bullish momentum. Immediate resistance is at 0.7020, with deeper retracement levels at 0.6920 and 0.6880 if support at 0.6950 breaks [1]. For AUD/JPY, the near-term bias remains mildly bullish as price holds above the 100-day EMA near 106.90, but momentum has cooled. Support is at 110.00 and 109.20, while resistance stands at 113.20 and 114.50 [2].
CONCLUSION
The Australian Dollar's decline was driven by softer inflation data and heightened geopolitical risks, with technical indicators suggesting fading bullish momentum. While the CPI slowdown is not expected to shift RBA policy expectations, ongoing Middle East tensions continue to influence risk sentiment and currency flows. Market participants remain cautious, watching for further developments in both inflation trends and geopolitical negotiations.