Australian Dollar opens at a gap down as US, Iran fail to reach peace deal
- AUD/USD declined as risk aversion rose after failed US–Iran talks, with no deal reached after 21 hours.
- President Trump said the US would begin blockading all ships entering or leaving the Strait of Hormuz.
- Parliament Speaker Ghalibaf said that despite constructive initiatives, the US failed to gain Iran’s trust.
AUD/USD recovers slightly after a gap-down open but remains in negative territory, trading around 0.7010 during the Asian hours on Monday. The pair weakened as risk aversion rises after US Vice President JD Vance said Washington and Tehran failed to reach a peace agreement in Islamabad following 21 hours of talks.
US Vice-President Vance noted negotiations had yet to produce a mutually acceptable deal, emphasizing the need for firm assurances that Iran will not pursue nuclear weapons. Meanwhile, US President Donald Trump said the US would begin “blockading” all ships entering or leaving the Strait of Hormuz.
On Iran’s side, Parliament Speaker Mohammad Bagher Ghalibaf said despite “constructive initiatives,” the US failed to gain the Iranian delegation’s trust, leaving the decision with Washington.
Rising energy costs have also fueled inflation concerns, with Australia’s monthly inflation gauge hitting a record 1.3% in March, signaling renewed price pressures since late 2025. The Reserve Bank of Australia (RBA) has already raised rates by 50 basis points to 4.10%, and markets now expect another hike in May.
As of April 10, the ASX 30 Day Interbank Cash Rate Futures May 2026 contract traded at 95.765, indicating a 64% probability of a rate hike to 4.35% at the next RBA meeting.
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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