The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, extended its gains for the third consecutive day, trading around 98.70 during the Asian hours on Thursday, marking its highest level in over a week [1][2]. This surge was driven by heightened safe-haven demand following Iranian attacks on three ships in the Strait of Hormuz, a critical passage for nearly 20% of global energy supply [1][2]. According to The Wall Street Journal, Iran fired on three ships and escorted two into Iranian waters, escalating tensions in the region [1][2]. Iranian officials, including parliament speaker Mohammad Bagher Ghalibaf, stated that reopening the strait would be 'impossible' while the US and Israel continue what he described as 'flagrant' ceasefire violations, including a US naval blockade [1]. However, White House press secretary Karoline Leavitt said the seizures did not breach the terms of the ceasefire [1]. President Donald Trump indicated that the current truce would remain in place indefinitely as Washington awaits a renewed peace proposal from Tehran [1].
The market reaction was pronounced, with risk-averse sentiment prevailing. The AUD/USD pair gave up early gains and traded 0.24% lower around 0.7145 during the Asian session, reflecting the Australian Dollar's weakness against the US Dollar [2]. The heat map showed the Australian Dollar was the weakest among major currencies, losing 0.25% against the US Dollar [2]. S&P 500 futures also traded 0.53% lower near 7,100, signaling a weak risk appetite among investors [2]. Rising energy prices due to the Hormuz closure intensified inflation concerns and reduced expectations for Federal Reserve rate cuts, as a Reuters survey showed 56 out of 103 economists expect the Fed to keep its policy rate within the 3.5%–3.75% range at least through September [1].
Despite the risk-off environment, Australian economic data provided a positive note. The flash S&P Global Purchasing Managers’ Index (PMI) for April returned above 50.0, indicating expansion, with the Composite PMI rising to 50.1 from 46.6 in March due to higher output in both manufacturing and services sectors [2].
Though the US-Iran ceasefire extension has reduced fears of direct military conflict, higher oil prices resulting from the Hormuz closure continue to pressure currencies from economies reliant on oil imports, such as Australia [2].
CONCLUSION
Heightened geopolitical tensions in the Middle East and the blockade of the Strait of Hormuz have boosted the US Dollar as a safe haven, while risk-sensitive assets like the Australian Dollar and S&P 500 futures have come under pressure. The market remains cautious, with inflation concerns and expectations for steady Fed rates supporting the Greenback. Despite positive Australian PMI data, the broader risk-off sentiment is likely to persist as long as uncertainty in the region continues.