I looked at the recent trend of the Australian dollar. The AUD/USD fell to around 0.7040 on Friday, a decline of nearly 0.7%. To be honest, I was a bit surprised because the Reserve Bank of Australia’s signals are actually quite hawkish.

On Tuesday, the RBA raised interest rates again, with the official cash rate reaching 4.10%, marking the second rate hike this year. RBA Governor Bullock also specifically mentioned that inflation is still too high, and the rising tensions in the Middle East could push up energy costs. Additionally, the employment data from February was also quite good, with the unemployment rate remaining stable. Theoretically, all these factors should support the Australian dollar.

But the problem is, the entire market is now risk-averse. The escalation in the Middle East has everyone flocking to the dollar, with risk aversion outweighing the positive fundamentals for the AUD. Analysts at Scotiabank are right—right now, the dollar is regaining stability, with rising bond yields and increased uncertainty making the USD more attractive. Plus, the Federal Reserve remains cautious, with limited expectations for rate cuts, which makes the dollar even more appealing.

So, the main pressure facing the Australian dollar isn’t fundamental issues but geopolitical risks and capital flows. As long as risk aversion persists, it will be difficult for the AUD to gain momentum.