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Australian Dollar underperforms as renewed Mideast conflicts drag riskier assets

  • The Australian Dollar trades lower against its major currency peers amid a risk-off mood
  • Iran’s refusal to have another round of talks with the US has renewed Middle East tensions.
  • Iran closes the Hormuz again due to the continuous US blockade of Iranian sea ports.

The Australian Dollar (AUD) underperforms its major currency peers during the late European trading session on Monday, trading 0.15% lower against the US Dollar (USD) at around 0.7155. The antipodean comes under pressure as renewed tensions between the United States (US) and Iran have diminished the demand for riskier assets.

Australian Dollar Price Today

The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the weakest against the Swiss Franc.

USDEURGBPJPYCADAUDNZDCHF
USD-0.07%-0.05%0.13%-0.05%0.10%0.01%-0.08%
EUR0.07%0.03%0.15%-0.00%0.17%0.09%-0.03%
GBP0.05%-0.03%0.13%-0.02%0.15%0.07%-0.06%
JPY-0.13%-0.15%-0.13%-0.14%0.00%-0.12%-0.20%
CAD0.05%0.00%0.02%0.14%0.14%0.03%-0.05%
AUD-0.10%-0.17%-0.15%-0.00%-0.14%-0.09%-0.21%
NZD-0.01%-0.09%-0.07%0.12%-0.03%0.09%-0.11%
CHF0.08%0.03%0.06%0.20%0.05%0.21%0.11%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).

As of writing, S&P 500 futures trade 0.55% lower ahead of Monday’s opening, reflecting a risk-off market mood. However, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, gives back its early gains and ticks marginally lower around 98.20.

Iran’s refusal to rejoin the table with the US for extending negotiations regarding a permanent ceasefire and its decision to close the Strait of Hormuz again have prompted dismal market sentiment.

During the day, Iran's foreign ministry spokesperson Esmail Baghaei confirmed that there is “no plan for a second round of negotiations with the US for now. Over the weekend, the Islamic Republic News Agency (IRNA) also reported that Tehran refuses to sit down again with US delegates for another round of talks due to Washington’s “excessive demands, unrealistic expectations, constant shifts in stance, repeated contradictions, and the ongoing naval blockade”.

Iran closed the Hormuz again, over the weekend, after a temporary reopening, as part of retaliation against the continued US blockade of Iranian sea ports.

Meanwhile, US President Donald Trump has reiterated threats to obliterate every power plant and bridge in Iran, through a post on Truth Social, if the nation doesn’t make a deal soon.

On the domestic front, investors await the confirmation hearing of US President Trump's nominee, Kevin Warsh, for the Federal Reserve’s (Fed) new Chairman, on Tuesday.

(This story was corrected on April 20 at 12:18 GMT to remove, in the second paragraph, a wrong reference to the S&P 500 futures price).

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

Sagar Dua

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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