AUD/USD rises as risk sentiment improves on US-Iran de-escalation hopes

• The Australian Dollar rises against the Greenback as market risk appetite strengthens.
• Hopes of a swift end to the US-Iran war support risk-sensitive assets.
• Mixed economic data from Australia and China limit the upside momentum.

AUD/USD advances on Wednesday and trades around 0.6940 at the time of writing, up 0.56% on the day. The pair rebounds, supported by improving risk sentiment that weighs on the US Dollar (USD).

The move is largely driven by comments from US President Donald Trump, who said on Tuesday that he plans to end the conflict in the Middle East within the next two to three weeks, even if a formal agreement with Tehran remains uncertain. He also stated that the Strait of Hormuz should reopen “automatically” once the attacks stop, which helped reassure markets.

These remarks supported risk assets globally. European Equity markets closed with strong gains, while Wall Street indices are posting solid advances. In this environment, Oil prices and the US Dollar have declined, while risk-sensitive currencies such as the Australian Dollar (AUD) have attracted buying interest.

The weakness of the Greenback is also reflected in the performance of the US Dollar Index (DXY), which tracks the US Dollar against a basket of six major currencies and is trading near 99.40, close to a one-week low after reaching a ten-month high of 100.64 on Monday.

On the macroeconomic front, recent US data remain broadly solid but have failed to provide meaningful support to the US Dollar. The Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) rose to 52.7 in March, above expectations, while Retail Sales increased by 0.6% MoM in February, marking their strongest gain in seven months. Meanwhile, the ADP Employment Change report showed that the private sector added 62K jobs in March, beating forecasts but slightly below the previous revised reading.

Several officials from the Federal Reserve (Fed) also commented on the economic outlook. Fed of Richmond President Thomas Barkin said that households and businesses still see the energy shock as temporary, but warned that rate hikes could become necessary if inflation expectations begin to rise. Meanwhile, Fed of St. Louis President Alberto Musalem stated that monetary policy is “well positioned” amid the current economic uncertainty, while highlighting potential inflation risks linked to the Middle East war.

In Australia, recent data have painted a more mixed picture. The Reserve Bank of Australia (RBA) Commodity Index surged 12.8% YoY in March, up from a revised 4.9% gain in the previous month and marking the strongest increase since January 2023. However, manufacturing activity in China, Australia’s key trading partner, slowed as the RatingDog Manufacturing PMI fell to 50.8 in March from 52.1 in February, below market expectations.

Despite these mixed signals, the Aussie continues to benefit from a more risk-friendly market environment, with investors closely monitoring geopolitical developments in the Middle East and their implications for safe-haven flows.