AUD/USD attracts some sellers below 0.6450 as US strikes Iran’s nuclear sites
- AUD/USD weakens to around 0.6440 in Monday’s early Asian session.
- US strikes Iran’s nuclear sites, risking wider war in the Middle East.
- Australia's S&P Global Manufacturing PMI arrived at 51.0 in June, Services PMI improved to 51.3.
The AUD/USD pair attracts some sellers to near 0.6440 during the early Asian session on Monday. The US Dollar (USD) edges higher amid the rising tensions in the Middle East after the United States (US) carried out airstrikes on three nuclear sites in Iran over the weekend.
US President Donald Trump on Saturday said the US had attacked three key nuclear facilities in the Iranian regime, Fordo, Natanz and Isfahan. US Navy submarines also launched more than 30 Tomahawk missiles into Iran, according to two defense officials. Investors expected US involvement would cause a stock market selloff and a possible bid for the Greenback and other safe-haven assets, but uncertainty remained.
Federal Reserve (Fed) governor Christopher Waller said on Friday that the US central bank could start cutting interest rates as soon as next month, signaling flexibility amid global economic uncertainty and rising geopolitical risks. These dovish comments could weigh on the Greenback and might help limit the pair’s losses in the near term.
On the Aussie front, data released by S&P Global on Monday showed that the preliminary reading of Australia's S&P Global Manufacturing Purchasing Managers Index (PMI) came in at 51.0 in June versus 51.0 prior. Meanwhile, the Services PMI improved to 51.3 in June from the previous reading of 50.6, while the Composite PMI rose to 51.2 in June versus 50.5 prior.
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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