AUD/USD rebounds as US-Iran deal hopes boost risk sentiment and temper Dollar strength

AUD/USD rebounds after a gap-down open as hopes for a US-Iran deal support sentiment.
US Dollar eases as DXY retreats from near 99.00 after early-week strength.
RBA’s hawkish stance and upcoming employment data keep interest rate expectations in focus.

Vishal Chaturvedi FXStreet

AUD/USD stages a sharp reversal on Monday after opening the week with a gap lower, as investors reassess evolving geopolitical developments in the Middle East and the prospects for a US-Iran deal. The rebound comes as hopes of a deal still being reached improve market mood, lifting the risk-sensitive Australian Dollar (AUD) while putting pressure on the US Dollar (USD).

At the time of writing, AUD/USD is trading around 0.7089, rebounding from an intraday low near 0.6990. Meanwhile, the US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading around 98.54, easing from intraday highs near the 99.00 level.

US President Donald Trump said during a press conference at the Oval Office on Monday that the United States has been contacted by “the right people” in Iran, signaling potential room for renewed negotiations. “We’ve been called by the other side,” he told reporters. “They’d like to make a deal very badly.”

These remarks come after Trump ordered a naval blockade targeting Iranian ports following a weekend of US-Iran talks that ended without a breakthrough.

Looking ahead, traders will closely monitor evolving geopolitical developments in the Middle East, particularly any signs of de-escalation and the potential reopening of the Strait of Hormuz, as elevated Oil prices continue to fuel inflation concerns and complicate the monetary policy outlook for major central banks.

In the US, the impact of rising Oil prices was clearly evident in the March inflation data, with headline CPI increasing by 0.9% MoM from 0.3% in February, while the annual rate rose to 3.3% YoY from 2.4%. The stronger inflation print has reinforced expectations that the Federal Reserve will hold interest rates steady in the coming months.

In Australia, the Reserve Bank of Australia (RBA) has maintained a hawkish stance amid persistent inflation pressures, with inflation remaining above the central bank’s 2%-3% target range. The RBA has already raised interest rates twice this year, and Australia’s employment data due on Thursday could influence interest rate expectations going forward.

Traders will also closely monitor China’s trade balance data on Tuesday, given Australia’s strong economic ties with China, which make the Aussie particularly sensitive to developments in the world’s second-largest economy.

Economic Indicator

Trade Balance CNY

The Trade Balance released by the General Administration of Customs of the People’s Republic of China is a balance between exports and imports of total goods and services. A positive value shows trade surplus, while a negative value shows trade deficit. It is an event that generates some volatility for the CNY. As the Chinese economy has influence on the global economy, this economic indicator would have an impact on the Forex market. In general, a high reading is seen as positive (or bullish) CNY, while a low reading is seen as negative (or bearish) for the CNY.

AUD/USD consolidates above 0.7000; remains close to monthly top

AUD/USD holds steady above 0.7000 during the Asian session on Friday, trading just below the previous day's monthly low amid diverging forces. A hawkish RBA continues to support the Aussie, while the recent decline in US bond yields keeps the US Dollar depressed near a three-week low. However, oil-driven inflation fears reinforce Fed hike bets, which, along with geopolitical risks, could benefit the safe-haven buck and cap the currency pair.

USD/JPY bounces off one-month low; climbs to 157.00 amid reviving USD demand

USD/JPY rebounds from the 156.00 neighborhood, or a one-month low touched during Friday’s Asian session, with bulls looking to extend momentum beyond 157.00 amid the emergence of some US Dollar buying. Meanwhile, Japan's National CPI rose to a nine-month peak and reaffirmed BoJ rate-hike bets, which could support the Japanese Yen and cap gains for the currency pair.

Gold treads water around $4,000

Gold prices maintain its offered stance in place at the end of the week, hovering around the key $4,000 threshold per troy ounce. The persistent selling bias in the precious metal comes amid decent gains in the US Dollar and an acceptable rebound in US Treasury yields across the curve, all alongside further upside traction in crude oil prices.

Week ahead: Central bank and earnings bonanza could roil markets

After joining the rate-hike club in September, the Federal Reserve looks set to stand pat in October, waiting to assess more data before deciding to hike again. Whilst this isn’t an unusual move for a central bank, it somewhat contradicts Fed Chair Kevin Warsh’s new mantra of data dependency and zero forward guidance.

CFTC Report: WTI rally runs ahead of positioning

The week in one sentence: WTI prices surged while speculative longs were cut in the week to October 20, creating the clearest price/positioning divergence. Sterling and the Canadian Dollar led the constructive currency shift, while Yen longs also rebuilt. Speculators turned less constructive on the WTI, reducing their net exposure to around 89.3K contracts.

What November 3 means for the Fed's rate path and the US Dollar

The USD faces a decisive period ahead of the November 3 midterm elections. While markets anticipate another interest rate increase from the Fed in December, the battle for control of Congress could reshape fiscal policy expectations and, indirectly, the path of US monetary policy in 2027.