Australian Dollar drops as Hormuz strikes spark US Dollar rush
- Hormuz attacks sour sentiment, pushing traders into Greenback safety.
- NY Fed survey shows inflation expectations rising again.
- FOMC minutes and jobless claims guide next Fed repricing.
The Australian Dollar retreats to two-day lows during the week, down 0.39%, as the US Dollar surges amid rising tensions in the Middle East. At the time of writing, the AUD/USD trades at 0.6928, having reached a daily high of 0.6961.
AUD/USD falls as Middle East tensions revive safe-haven Dollar demand
Tensions around the Strait of Hormuz had increased, as the frail US-Iran agreement entered a second round of hostilities on Tuesday. During the overlap between the Asian and European sessions, newswires reported that two vessels were attacked. In the meantime, Washington retaliated, reimposing sanctions on Iran’s Oil and the US CENTCOM reported that they were hitting Iranian weapon launch sites, air defences, and that more strikes are expected to last for hours, the AP reported.
Therefore, market mood shifted sour, and the Greenback is advancing, about to challenge two-day highs. As of writing, the US Dollar Index (DXY), which tracks the performance of the buck’s value against a basket of six currencies, is up 0.26%, at 101.12.
The US economic docket featured the Goods and Services Trade Balance in May, which showed the trade deficit widened below estimates but exceeded April’s figure. Meanwhile, the NY Fed Survey of Consumer Expectations showed that households expect higher prices, with one-year inflation expectations rising from 3.5% to 3.7% in June.
Given the geopolitical backdrop and the rise in energy prices and inflation expectations, traders see a 100% chance of a Federal Reserve interest rate hike in 2026, according to Prime Terminal data.
In Australia, the economic docket remains absent, yet traders would be focused on changes in market sentiment, which could boost the appetite for the Aussie Dollar.
Meanwhile, the Reserve Bank of Australia (RBA) had already raised rates thrice in 2026. In the last meeting minutes, the central bank adopted a more neutral stance, but it remains open to raising interest rates if needed.
Ahead, this week, the US economic schedule will feature the FOMC's last meeting minutes alongside Initial Jobless Claims for the week ending July 4.
AUD/USD Price Forecast: Technical outlook
In the daily chart, AUD/USD trades at 0.6928, keeping a bearish near‑term bias as spot holds well beneath the latest simple triple moving average at 0.7086 and a series of previously rising trend lines that now sit overhead between roughly 0.7002 and 0.7111. The Relative Strength Index (14) around 40 leans mildly bearish, suggesting that downside pressure persists, even if the pair is not yet in oversold territory.
With no clear structural support levels derived from the provided indicators below the current price, traders will likely focus on the topside, where initial resistance emerges near 0.7002 from the latest upward trend‑line sequence, followed by a dense cap formed by clustered broken supports and the triple simple moving average between 0.7086 and 0.7111. Above that, a longer‑term downward resistance line anchored near 0.8015 marks a more distant barrier that would need to be overcome to neutralize the broader bearish technical tone.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
