Australian Dollar drops to fresh lows since April vs USD amid global risk-off impulse
- AUD/USD meets with a fresh supply on Friday, though the RBA’s hawkish tilt limits losses.
- Hormuz risks and Fed rate hike bets revive USD demand, exerting pressure on spot prices.
- Traders now look to the US Consumer Sentiment Index and Fedspeak for a fresh impetus.
The AUD/USD pair attracts fresh sellers following the previous day's modest gains and drops to a fresh low since early April during the Asian session on Friday. Spot prices, however, recover a few pips in the last hour and currently trade just below the 0.6900 mark, still down over 0.25% for the day.
According to the third and final reading published by the US Bureau of Economic Analysis on Thursday, the economy grew at an annualized rate of 2.1% in the first quarter of 2026 compared to the second estimate of 1.6% rise. Adding to this, the US Personal Consumption Expenditures (PCE) Price Index highlighted persistent inflationary pressures, keeping an interest rate hike by the US Federal Reserve (Fed) this year firmly on the table. Apart from this, the cautious market mood helps the safe-haven US Dollar (USD) stall its corrective pullback from the highest level since May 2025, touched on Thursday, and exerts downward pressure on the AUD/USD pair.
Reports suggested that Iran’s Islamic Revolutionary Guard Corps (IRGC) attacked a Singapore-flagged cargo ship in the Strait of Hormuz. The latest development reignites worries about the sustainability of the preliminary US-Iran peace deal. Apart from this, the recent tech-driven selloff in the equity markets has triggered global risk aversion, which is seen as another factor behind the Greenback's relative outperformance against the perceived riskier Australian Dollar (AUD). That said, expectations that the Reserve Bank of Australia (RBA) will stick to its hawkish stance hold back bearish traders from placing aggressive bets around the AUD/USD pair.
Traders now look forward to the release of the revived University of Michigan US Consumer Sentiment Index, which, along with Fedspeak, might influence the USD price dynamics. The focus will then shift to RBA Governor Michele Bullock's speech on Sunday, which should provide a fresh impetus to the AUD/USD pair at the start of a new week. Nevertheless, spot prices remain on track to register heavy weekly losses, also marking the second straight week of a negative move.
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
Haresh Menghani
FXStreet
Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.
