Australian Dollar advances as Hormuz breakthrough sinks USD and Oil
- US-Iran MOU promises Hormuz reopening and nuclear-program talks.
- Weaker Dollar supports AUD/USD before Warsh’s first Fed decision.
- RBA expected to hold, though inflation risks keep tone hawkish.
The Australian Dollar registered gains of over 0.37% on Monday as the US and Iran agreed on a Memorandum of Understanding (MOU) aimed at ending the conflict and setting the stage for talks about Tehran’s nuclear program. At the time of writing, the AUD/USD trade at 0.7072 after bouncing off daily lows of 0.7041.
AUD/USD gains as Middle East breakthrough boosts risk appetite
Market sentiment improved amid the potential resolution of the Middle East conflict, even though the details of the agreement remain unknown. Nevertheless, what both parties have leaked is that the Strait of Hormuz would be opened, the US Navy blockade lifted, that Iran would dilute enriched uranium inside its territory and that talks about the nuclear program will begin for 60 days.
The US Dollar Index (DXY), which measures the buck’s performance against a basket of six currencies, is down 0.15% at 99.66, as Oil prices tumbled amid free navigation in the Persian Gulf, freeing over a fifth of the world's oil production.
Hence, eyes turn to the Federal Reserve’s monetary policy decision, in which the US central bank, led by the new Chairman Kevin Warsh, is expected to hold rates unchanged. Fed officials will also update their Summary of Economic Projections (SEP), though investors would be keen to hear Warsh's communication tone.
In Australia, the Reserve Bank of Australia (RBA) is expected to keep the Cash Rate at 4.85%, after hiking thrice this year, spurred by the energy shock triggered by the Middle East conflict.
In the last meeting, RBA Governor Bullock commented that if second-round effects changed inflation expectations, higher rates would be needed. Nevertheless, she acknowledged that policy is a “bit” restrictive and that the RBA has room to “wait-and-see.”
Analysts at Morgan Stanley stated, “We expect the RBA Board will leave the cash rate on hold at 4.35% at its 16 June meeting, following three consecutive hikes. The statement is still likely to lean hawkish as inflation pressures are broadening and the Board will remain alert to de-anchoring risk.”
Ahead, Australia’s economic docket will feature the RBA’s meeting. In the US, traders await Retail Sales, the US central bank's monetary policy decision, and jobless claims data.
AUD/USD Price Forecast: Technical outlook
In the daily chart, AUD/USD trades at 0.7072, maintaining a mildly bearish near-term tone as it holds below the clustered simple moving averages around 0.7143. The broader structure still leans constructive thanks to a series of rising support trend lines from the 0.68–0.69 area, but the latest pullback and a subdued Relative Strength Index (RSI) around the mid‑40s suggest fading upside momentum while the pair remains capped by overhead averages and trend resistance.
On the topside, initial resistance is defined by the simple moving average triple cluster near 0.7143, with the broader downward trend-line structure acting as an additional cap should the pair attempt a recovery. On the downside, buyers are expected to emerge along the sequence of ascending trend-line supports projecting from the 0.68–0.69 region, with any sustained break beneath these rising floors likely opening a deeper retracement within the broader uptrend.
(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.
