AUD/USD sinks below 0.6900 as Middle East fears fuel rush into USD
- AUD/USD extends losses as risk aversion and haven flows lift the US Dollar.
- Rising oil and gasoline prices reinforce Dollar strength amid Hormuz supply concerns.
- Stable US labor data and higher yields add pressure on the Aussie.
The Australian Dollar (AUD) tumbles for the third straight day against the US Dollar (USD) on Thursday as market sentiment turns sour amid a possible escalation of the conflict, amid doubts for a ceasefire agreement between the US and Iran. The AUD/USD pair trades below 0.6900, down 0.76%.
Aussie slides amid rising geopolitical tensions, high Oil prices, and a firm US Dollar
Geopolitics is setting the tone in the financial markets amid growing pessimism that the US and Iran will reach an agreement to end the war. Wall Street finished the session in the red. US Treasury yields are rising, underpinning the Greenback, which, according to the US Dollar Index (DXY), which measures the buck’s value against a basket of six currencies, edges up 0.37% to 100.00.
Expectations that the energy shock caused by the Middle East war, which triggered the quasi-closure of the Strait of Hormuz, sent energy prices higher. Year-to-date, WTI is up 64% and Gasoline nearly 80%.
Recently, US President Donald Trump said that he wouldn’t commit to an agreement, as speculation of an imminent attack against Iran using ground forces is at least a certainty.
The US economic docket featured Initial Jobless Claims figures for the week ending March 21. Claims rose from 205K to 210K, as expected, and they were the lowest in nearly two years. The jobless claims 4-week average dipped from 210.75K to 210.5K, suggesting the labor market had stabilized.
In Australia, last week’s rate hike by the Reserve Bank of Australia (RBA) pushed AUD/USD towards 0.7100 before reversing course amid haven flows into the US Dollar. Also, the jump in oil prices keeps the US Dollar underpinned because it is denominated in USD, which increases the correlation between WTI and the DXY.
On Thursday, the RBA’s Assistant Governor Christopher Kent said that the Middle East conflict has tightened financial conditions, but that supply shock also posed a risk to inflation. He recognized that “central banks can’t change that,” but that they could cap the spike of energy prices to prevent “extended inflationary pressures.”
AUD/USD Price Forecast: Technical outlook
In the daily chart, AUD/USD trades at 0.6892. The near-term bias turns bearish after the pair slipped below the rising support line that had been guiding the advance from the 0.68 area and is now trading under the most recent sequence of supported closes around 0.70–0.71. Price also sits beneath the clustered simple moving averages near 0.70, which now cap the upside and confirm a loss of upward momentum. The RSI has retreated toward 40, signalling building downside pressure rather than a mere pause within the previous uptrend.
Initial resistance emerges at the 0.7000 region, where the broken ascending trend line and the grouped moving averages converge, with a break above this area needed to ease immediate selling pressure and open the way toward 0.7070. On the downside, immediate support is located at the recent low near 0.6890, with sustained weakness below exposing the 0.6800 area next. A daily close back above 0.7000 would neutralize the current bearish tone, while holding below keeps sellers in control and maintains focus on lower supports.
(The technical analysis of this story was written with the help of an AI tool.)
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
Author
Christian Borjon Valencia
FXStreet
Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.
