|

Australian Dollar slumps to near 0.7050 amid escalating Middle East tensions

  • AUD/USD falls to near 0.7055 in Monday’s early Asian session. 
  • Traders turn to the safe-haven currency amid the Iran crisis. 
  • The conflicts in the Middle East will be closely watched. 

The AUD/USD pair tumbles to around 0.7055 during the early Asian session on Monday. The US Dollar (USD) strengthens against the Australian Dollar (AUD) amid escalating tensions in the Middle East after the United States (US) and Israel launched a "massive" and ongoing attack against Iran's leadership and military. 

The US and Israel are engaged in major combat operations against Iran, following a massive joint military strike launched on Saturday. Iranian state television confirmed that Iran's Supreme Leader Ayatollah Ali Khamenei was killed in an airstrike in Tehran on Saturday. Iran responded with missile and drone attacks targeting Israel and regional US military bases in Kuwait, Bahrain, Qatar, and Jordan. This raises fears of wider conflict in the Middle East, which underpins the safe-haven currencies such as the Greenback and acts as a headwind for the pair. 

Traders will closely monitor the developments surrounding the US-Iran tensions. However, some analysts warn that US policy turbulence under the current administration could weigh on the USD against the Aussie. 

Risk sentiment FAQs

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

Author

Lallalit Srijandorn

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.

More from Lallalit Srijandorn
Share:

Editor's Picks

GBP/USD tumbles to three-day lows around 1.3420

GBP/USD comes under extra selling pressure and revisits the area of multi-day lows near 1.3420 in quite a bearish start to the week. Cable’s decline comes amid the firmer Greenback as investors continue to assess developments in the US-Iran conflict. Moving forward, attention will turn to the UK employment report on Tuesday.


EUR/USD declines to near 1.1400 as US launches fresh strikes on Iran

The EUR/USD pair posts modest losses around 1.1410 during the early Asian trading hours on Tuesday. Renewed tensions between the United States (US) and Iran continue to fuel risk-off sentiment, weighing on the Euro (EUR) against the US Dollar (USD). The ZEW surveys from Germany and the Eurozone are due later on Tuesday.  Also, the US ADP employment report will be released. 

Gold holds above $4,000 as inflation-driven Fed hike bets cap upside

Gold holds steady above $4,000 during the Asian session on Tuesday, though the upside potential seems limited. Inflation fears stemming from elevated oil prices reaffirm bets for higher US interest rates, which, along with an escalation in the Middle East war, continue to underpin the safe-haven US Dollar. This should act as a headwind for the non-yielding bullion, warranting caution for bullish traders before positioning for any meaningful gains.

Grayscale eyes Worldcoin ETF launch following S-1 filing

Grayscale filed an S-1 registration statement with the US Securities and Exchange Commission on Monday to launch a Grayscale Worldcoin ETF. The proposed fund, which would trade on Nasdaq under the ticker GWLD, is designed to give investors exposure to Worldcoin through a traditional brokerage account, eliminating the need to buy the token directly.

Here's where the Canadian Dollar is headed next: 4 bearish scenarios and a bullish one
The Canadian Dollar (CAD) has ridden a volatile first half of the year, with Oil prices surging and then falling as markets danced to the Middle East’s tune. Neither the Bank of Canada nor the Federal Reserve has changed rates so far this year, and the USD/CAD's next move may depend on which of the two banks fails to deliver what markets expect.
US Dollar mid-year outlook: Exceptional currency, exceptional risks?
The US Dollar enters the second half of 2026 in a markedly different position from a year ago. The King currency has recovered, reflecting persistent US inflation, changing expectations for Fed policy, geopolitical tensions and renewed demand for defensive assets.