Australian Dollar steadies as Middle East diplomacy takes focus

The Australian Dollar steadied on Tuesday as diplomatic developments in the Middle East took center stage. The AUD/USD exchange rate traded around 0.7107, down 0.15% on the day after hitting an intraday low of 0.7092. Iran proposed to reopen the Strait of Hormuz within seven days if the US lifted its blockade and eased military pressure, according to a senior Iranian official.

Markets were also monitoring the UN General Assembly in New York, where US President Donald Trump and Iranian President Masoud Pezeshkian were both attending. US President Trump was set to meet Gulf leaders later on Tuesday, though no direct meeting with Iranian President Masoud Pezeshkian had been scheduled. This situation weighed on the US Dollar, which, coupled with lower oil prices, put downward pressure on the pair.

However, the US Dollar Index (DXY) remained buoyed by expectations of more Federal Reserve rate hikes, while the US economy showed some positive signs with the ADP NER Pulse showing private employers added 20,000 jobs per week over the four weeks ending September 5. The Australian Dollar found support in a hawkish Reserve Bank of Australia (RBA) outlook, which had already raised rates three times this year to 4.35%.

RBA Governor Michele Bullock indicated that "upside inflation risks may be materializing," but she did not signal any policy shift. If the RBA raises rates again, it could further bolster the Australian Dollar due to the widening interest-rate gap with the US.