A tale of two halves: Aussie dollar clings to Q1 gains despite geopolitical storm

Aussie dollar caught between quarterly strength and monthly weakness

AUD/USD finished last week lower at 0.6873, posting a 2.11% decline – its largest weekly drop since March 2025. That move left the Aussie dollar languishing at a two‑month low as the week drew to a close.

With just one‑and‑a‑half trading sessions left before the end of both March and the first quarter (Q1), the pair’s performance in 2026 tells a fascinating tale of two halves.

For the month of March, AUD/USD has been one of the worst‑performing G10 currencies. It has fallen 3.71%, putting it roughly on par with the Swiss franc (−3.75%). However, it has managed to avoid the absolute bottom of the barrel, outperforming the ‘flightless bird’ – the New Zealand dollar, which is down about 4.41% – and the Swedish krona, which has shed almost 5%.

Zoom out to the Q1, however, and the picture looks vastly different. AUD/USD is on track to finish Q1 with a respectable gain of around 2.69%. That puts it right at the top of the G10 leaderboard, just pipping a fast‑finishing US dollar index (DXY) at +1.92%.

This stark contrast in fortunes perfectly illustrates the disruptive impact of the Middle East conflict that kicked off in late February. Escalating tensions – namely the closure of the Strait of Hormuz and the subsequent surge in oil prices – have sent investors scrambling for the safety of the world’s reserve currency. As a risk‑sensitive, pro‑cyclical commodity currency, the Aussie has naturally found itself squarely in the crosshairs.

Over the weekend, the geopolitical backdrop took another turn for the worse as Yemen’s Iran‑aligned Houthis announced they are officially joining the conflict. Combined with reports of a continued US military buildup in the region, broader risk sentiment remains incredibly fragile. This cautious mood drove AUD/USD to a fresh nine‑week low of 0.6841 after the reopen this morning.

Geopolitics to dominate AUD/USD direction this week

Looking ahead, AUD/USD’s trajectory this week will continue to be heavily dictated by offshore geopolitics. Any further escalation in the Middle East will keep the Aussie under pressure, while any genuine progress toward reopening the Strait of Hormuz would be the catalyst for a much‑needed relief rally. Locally, traders will also be keeping a close eye on the Reserve Bank of Australia (RBA) meeting minutes, previewed below.

RBA meeting minutes

Date: Tuesday, 31 March at 11.30am AEDT

At its board meeting two weeks ago, the RBA raised the cash rate by 25 basis points (bp) to 4.10% in a 5-4 split, the second consecutive hike after February’s move to 3.85%.

Governor Michele Bullock noted that while all members agreed a hike was warranted given renewed inflationary pressures, the split centred on timing rather than the need for action itself.

Markets will be scrutinising the minutes for clues on how much more tightening the board believes is still required, or whether this latest hike is seen as sufficient to keep inflation tracking sustainably back toward the 2% - 3% target.

The Australian interest rates market is currently pricing in 16 bp of tightening for the May board meeting. Further out, there is a cumulative 65 bp of hikes expected through the remainder of 2026, which would lift the cash rate to 4.75%.

RBA cash rate chart

AUD/USD technical analysis

Since our mid‑March update here, we’ve been highlighting the possibility that the 0.7189 high printed on 11 March marked a potential Wave V (Elliott Wave) top. That would complete a clean five‑wave advance off the November 2025 low at 0.6419 to the 0.7189 high, setting the stage for a corrective pullback.

The chart now shows that scenario playing out. After holding the 0.6950 – 0.6900 support zone for two weeks, AUD/USD broke decisively lower into the end of last week.

This technical break opens the door for the correction to extend further, targeting a sturdy band of support between 0.6800 and 0.6760. This zone includes both the 50% Fibonacci retracement of the entire rally at 0.6804 and the previous swing high of 0.6766 from 6 January.

Our base case is that we favour this support band holding. Consequently, we will be watching closely for any signs of basing in this region as a precursor to the uptrend resuming.

AUD/USD daily candlestick chart

• _{Source: TradingView. The figures stated are as of 30 March 2026 Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}