Australian Dollar holds steady above 0.7200 vs USD amid Iran tensions, ahead of US NFP

AUD/USD struggles to gain any meaningful traction amid a combination of diverging forces.
Renewed Iran hostilities benefit the safe-haven USD and act as a headwind for spot prices.
The divergent RBA-Fed expectations support the pair as traders await the US NFP report.

Haresh Menghani FXStreet

The AUD/USD pair finds some support near the 0.7200 mark during the Asian session on Friday, though it struggles to gain any meaningful traction amid persistent geopolitical uncertainties. Nevertheless, spot prices remain within striking distance of the highest level since June 2022, touched on Wednesday, as traders keenly await the release of the closely-watched US monthly employment details.

The optimism over a potential US-Iran peace deal and the de-escalation of conflict fades rather quickly in the wake of renewed hostilities with Iran in the Strait of Hormuz. In fact, the US military said that it had intercepted Iranian attacks on three American warships transiting through the strategic waterway. Earlier, Iran accused the US of violating the ceasefire by striking multiple targets in and around the strait. This keeps geopolitical risks in play, which assists the safe-haven US Dollar (USD) in preserving the previous day's gains and acts as a headwind for the AUD/USD pair.

However, the Australian Dollar (AUD) continues to draw some support from the Reserve Bank of Australia's (RBA) hawkish tilt. In fact, the central bank indicated earlier this week that inflation remains too high and refused to rule out further tightening. In contrast, investors scaled back their expectations for a rate hike by the US Federal Reserve (Fed) in 2026 in the wake of the recent decline in Crude Oil prices. The divergent RBA-Fed policy outlooks, in turn, keep a lid on any meaningful USD appreciation and warrant some caution before placing bearish bets on the AUD/USD pair.

Traders also seem reluctant and now look forward to the US Nonfarm Payrolls (NFP) report for some meaningful impetus later during the North American session. The official report is expected to show that the US economy added 62K new jobs in April, down sharply from 178K in the previous month. The Unemployment Rate, however, is seen holding steady at 4.3%. The focus will also be on Average Hourly Earnings, which might influence Fed expectations. This, in turn, will play a key role in driving the USD demand and producing short-term trading opportunities around the AUD/USD pair.

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

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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