Australian Dollar gathers strength to near 0.7050 as Trump cancels Iran strikes

The Australian Dollar (AUD) gains strength against the US Dollar (USD), reaching near 0.7040 during early Asian trading on Monday. This increase in the AUD's value is attributed to a shift in risk sentiment following reports that US President Donald Trump has cancelled planned military strikes against Iran. Traders are now watching for the release of China's Purchasing Managers Index (PMI) report, which is expected later in the day.

According to Bloomberg, Trump reportedly cancelled the strikes due to his belief that a deal on Iran's nuclear program was near and to address concerns from Iran and other regional countries. He announced this on his social media platform, Truth Social, on Saturday. Traders will be closely monitoring the situation as any positive developments between Iran and the US could provide support to riskier assets, including the Australian Dollar.

However, there remains high uncertainty due to the ongoing tensions in the Middle East, which could lead to increased safe-haven flows and support for the US Dollar, potentially exerting a downward pressure on the AUD. The Reserve Bank of Australia (RBA) has expressed a hawkish stance, indicating a likelihood of a further rate hike this year, bringing the Official Cash Rate (OCR) to 4.6%.

This hawkish tone has prompted markets to anticipate another rate hike, with RBA Governor Michele Bullock stating that the Board is prepared to act if necessary to achieve its mandate. Analysts at BNY have highlighted that RBA Assistant Governor Sarah Hunter has reiterated the need for the RBA to maintain a restrictive stance, emphasizing that inflation is still above the 2-3% target band and that higher inflation expectations should not become entrenched.

The level of interest rates set by the RBA is a crucial factor influencing the Australian Dollar. As a resource-rich country, Australia's export of iron ore also plays a significant role, with the health of China, its largest trading partner, being another key driver. The Trade Balance, which measures the difference between what a country exports and imports, and the overall health of the Chinese economy can also impact the Australian Dollar's value.