Australian Dollar drifts higher above 0.7000 as Trump signs US-Iran deal
- AUD/USD edges higher to near 0.7025 in Thursday’s early Asian session.
- Trump signed an agreement with Iran at Versailles.
- The Fed decided to keep its benchmark rate unchanged in a range of 3.5%-3.75% on Wednesday.
The AUD/USD pair gathers strength to around 0.7025 during the early Asian trading hours on Thursday. Optimism surrounding the US-Iran peace deal provides some support to the riskier assets, such as the Australian Dollar (AUD) against the US Dollar (USD). The US Initial Jobless Claims report will be published later in the day.
US President Donald Trump and Iran’s President Masoud Pezeshkian late Wednesday electronically signed a memorandum of understanding to end the US and Israel’s war on Iran, per Reuters. Pakistan’s prime minister, Shehbaz Sharif, said the US-Iran agreement is taking “immediate effect” after being signed by both sides.
Washington and Tehran are expected to formally sign the MOU on Friday in Geneva. Positive developments surrounding the peace agreement could undermine a safe-haven currency like the Greenback and create a headwind for the pair.
On the other hand, hawkish signals from the US Federal Reserve (Fed) might help limit the USD’s losses. The Federal Open Market Committee (FOMC) on Wednesday voted unanimously to keep its benchmark overnight borrowing rate unchanged in a range of 3.5%-3.75% at its June policy meeting.
The federal funds rate has held there since the US central bank lowered rates by three-quarters of a percentage point in the latter part of 2025.
On the Aussie front, the Reserve Bank of Australia (RBA) decided to keep the Official Cash Rate (OCR) on hold at 4.35% after concluding its June monetary policy meeting on Tuesday. This is a pause following three consecutive 25 basis points (bps) rate hikes earlier this year.
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.
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