Australian Dollar advances despite increased risk aversion
- Australian Dollar gains ground ahead of China’s RatingDog Services PMI release.
- Markets price a 55% chance of a 4.35% rate hike at the next RBA meeting.
- Trump highlighted a Tehran bridge strike, warning of further action and urging Iran to “make a deal.”
AUD/USD gains ground after registering modest losses in the previous day, trading around 0.6910 during the Asian hours on Friday. The pair gains as the US Dollar (USD) softens, even amid stronger safe-haven demand due to escalating Middle East tensions. Trading activity may remain subdued owing to the Good Friday holiday.
China, Australia’s key trading partner, will release the RatingDog Services Purchasing Managers’ Index (PMI) later in the day. Focus will then shift to the US Nonfarm Payrolls (NFP) report for March during the North American session.
Markets caution that higher energy prices, linked to the Middle East conflict, may push inflation higher, prompting downward revisions to growth forecasts and increasing expectations of further Reserve Bank of Australia (RBA) rate hikes amid rising stagflation risks. As of April 1, ASX 30 Day Interbank Cash Rate Futures for May 2026 were at 95.785, implying a 55% probability of a rate hike to 4.35% at the next RBA meeting.
US President Donald Trump on Thursday highlighted the destruction of a bridge in Tehran, warning of further action and urging Iran to strike a deal “before it is too late.” Meanwhile, Iran’s Foreign Minister Abbas Araghchi said recent US strikes on civilian infrastructure would not force Iran to retreat, adding they signal the “defeat and moral collapse of an enemy in disarray.”
Chicago Fed President Austan Goolsbee expressed concern over rising oil prices, noting they could complicate efforts to curb inflation, particularly if gasoline costs surge and lift inflation expectations.
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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