AUD/USD’s recovery halts at 0.7060 as Trump vows to close Hormuz
- AUD/USD is failing to find acceptance above 0.7060 after bouncing from 0.6990 lows.
- Trump's pledge to close Hormuz keeps the safe-haven US Dollar supported.
- Australian consumer confidence and employment data might drive the Aussie later this week.
The Australian Dollar (AUD) bounced at session lows to 0.6990 against the safe-haven US Dollar (USD) on Monday to close a previous trading gap in the area of 0.7055. The pair, however, is struggling to extend gains amid the weak market sentiment, following the failure of the US-Iran peace talks and US President Trump’s plan to close the Strait of Hormuz.
The US President announced on Truth Social that he has ordered the US Navy to block any vessel trying to enter or leave Iran’s ports. This measure is highly likely aimed at China, the main recipient of Iran’s Oil, to pressure the Islamic Republic to soften its stance at further negotiations.
Meanwhile, the two-week ceasefire remains in place, although Iran’s Revolutionary Guard has warned that the presence of foreign army vessels will be considered a violation of the truce, and that those ships will be “dealt with severely.”
The macroeconomic calendar is practically empty on Monday. On Tuesday, the attention will shift to the US Producer Prices Index (PPI) data from March, which is expected to follow the line of Friday’0s Consumer Prices Index (CPI) figures and add pressure on the Federal Reserve (Fed) to hike interest rates at least once in 2026.
In Australia, Tuesday’s Westpac Consumer Confidence data is likely to show the impact of the energy shock on Australian buyers. The highlight of the week, however, will be March’s employment report, which is expected to shed some more light on the Reserve Bank of Australia’s near-term monetary policy plans.
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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