Australian Dollar gains traction as Trump extends Iran ceasefire, Australian PMIs rebound into expansion

AUD/USD gains ground to around 0.7155 in Thursday’s early Asian session.
Trump said there is “no time frame” for the conflict with Iran.
Australian preliminary PMIs climbed back into expansion in April.

Lallalit Srijandorn FXStreet

The AUD/USD pair gains momentum near 0.7155 during the early Asian session on Thursday. US President Donald Trump’s extension of a ceasefire with Iran revives risk appetites, supporting the Australian Dollar (AUD) against the US Dollar (USD). The preliminary reading of the S&P Global Purchasing Managers Index (PMI) is due later on Thursday.

US President Donald Trump said on Tuesday that the US is extending the ceasefire with Iran at Pakistan’s request as he waits for a unified proposal from Iran. This development eases fears of a renewed conflict that had pushed energy prices sharply higher.

However, tensions remain high as Tehran keeps a tight grip on the Strait of Hormuz, controlling passage through the trade route and firing on ships. The speaker of the Iranian parliament and top negotiator, Mohammad Bagher Ghalibaf, said that reopening the Strait of Hormuz would be “impossible” while the US and Israel committed “flagrant” breaches of the ceasefire, including the US naval blockade.

Signs of a prolonged war in the Middle East could boost a safe-haven currency such as the Greenback and create a headwind for the pair.

Data released by S&P Global on Thursday showed that the preliminary reading of Australia's S&P Global Manufacturing Purchasing Managers Index (PMI) climbed to 51.0 in April, compared to 49.8 in March. Meanwhile, Australia’s S&P Global Services PMI rose to 50.3 in April from the previous reading of 46.3, while the Composite PMI rose to 50.1 in April versus 46.6 prior.

Australian Dollar FAQs

What key factors drive the Australian Dollar?

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.

How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?

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.

How does the health of the Chinese Economy impact the Australian Dollar?

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.

How does the price of Iron Ore impact the Australian Dollar?

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.

How does the Trade Balance impact the Australian Dollar?

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

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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