Australian Dollar edges higher above 0.7000 on US-Iran breakthrough hopes
- AUD/USD gains traction to near 0.7020 in Tuesday’s early European session.
- Hopes of a breakthrough between the US and Iran support the Australian Dollar.
- The RBA retains a hawkish stance despite the cooler inflation report.
The AUD/USD pair gains momentum around 0.7020 during the early European session on Tuesday. Easing tensions in the Middle East improves risk sentiment and provides some support to the Australian Dollar (AUD) against the US Dollar (USD). Australia’s Trade Balance data will be released later on Thursday. On Friday, the attention will shift to the US employment report for July.
Optimism surrounding US-Iran talks and a potential deal regarding the Strait of Hormuz lifts a risk-sensitive currency such as the Aussie. US President Donald Trump said on Monday that talks with Iran are underway, adding that the negotiations are Tehran’s “last chance” to secure a deal to end the five-month conflict. However, Iranian officials denied holding talks with the US, saying Tehran is speaking to Oman about the Strait of Hormuz.
The Reserve Bank of Australia (RBA) maintains a hawkish tone despite cooler inflation data. RBA Governor Michele Bullock last week warned that underlying inflation remained too high and a further slowdown in domestic demand may be required to tame prices. Bullock further stated that policymakers were prepared to raise interest rates again if needed. Markets continue to fully price in one more RBA rate hike this year, which would take the Official Cash Rate (OCR) to 4.60%.
Traders will closely watch the US July employment data on Friday, as it might offer more clarity on the Federal Reserve’s (Fed) next policy move. If the reports show stronger-than-expected outcomes, this would reinforce higher-for-longer US rate bets and help limit the Greenback’s losses.
Dollar gains fail to shake Aussie’s top G10 spot as RBA hikes cap AUD/USD upside
Analysts at Rabobank highlight a notable build-up in speculative positioning against the Aussie, with "AUD net shorts have risen for the sixth consecutive week, to the highest since September 2025." Yet, they point out that the currency has still been resilient in spot terms, noting that "AUD remains a top performing G10 currency YTD, up 4.9% against USD on the back of the RBA’s three rate hikes this year." Looking ahead, Rabobank cautions that the rally may be running out of steam, stating that "we see limited upside potential for AUD/USD on a 3-month view and forecast the pair trading sideways around 0.69-0.70."
Technical Analysis: AUD/USD remains capped under the key 100-day SMA
In the daily chart, AUD/USD holds above the Bollinger Bands simple moving average middle line but remains capped by the 100-day simple moving average (SMA), leaving the near-term bias neutral within a tight range. The Relative Strength Index (14) at 55.5 leans slightly to the upside, suggesting modest bullish momentum while price oscillates inside the upper half of the recent Bollinger envelope.
On the topside, initial resistance is located at the Bollinger upper band near 0.7040, followed by the 100-day SMA at 0.7052, where stronger supply could emerge. On the downside, immediate support appears at the Bollinger middle band around 0.6980, with a deeper cushion at the lower band near 0.6925 if sellers extend a pullback.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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