Australian Dollar falls as Iran sanctions sour risk appetite, RBA minutes eyed
- AUD/USD falls as Iran sanctions sour global risk appetite.
- RBA minutes and Jacobs speech could shape rate expectations.
- Australia CPI and US PCE drive next market catalysts.
The Australian Dollar began the week on a lower note, trading with a 0.28% loss against the Greenback as risk appetite soured after the US Department of the Treasury imposed sanctions on Iran-linked entities. At the time of writing, the pair trades at 0.7159
AUD/USD weakens as Iran sanctions dent sentiment before inflation data
Wall Street ended Monday’s session in the red, while US Treasury Secretary Scott Bessent embarked on a mission to cut off Iran from the global economy. Aside from this, data in the US revealed that the Chicago Fed’s National Activity Index dipped to -0.08 from 0.06 in July, remaining near the trend level 0 level throughout the year.
The White House, through Bessent, revealed sanctions on Tehran, targeting five areas: digital assets, technology, gold, aviation and shipping. He added that they’re giving a timeline to world leaders to cut ties with Iran, while saying that Trump will speak with countries.
In the meantime, the US economic docket will pick up the pace starting Tuesday, with growth, inflation, and jobs data releases, including the Fed’s favourite inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index. Aside from this, eyes are on Fed Chair Kevin Warsh's speech at Jackson Hole on August 28.
In Australia, the economic docket will feature the release of the Reserve Bank of Australia’s (RBA) last meeting minutes, while the RBA’s head of domestic markets, David Jacobs, will cross the wires.
After that meeting, money markets had priced in a slim 14% chance that the RBA would raise rates at the September 29 meeting, with odds of holding rates expected to stay at 86%, according to Prime Terminal.
The Aussie economic calendar will feature inflation data on Wednesday, with economists estimating that prices rose 0.8% in July. In the twelve months to July, analysts estimate that inflation eased from 3.8% to 3.2%, while the trimmed-mean Consumer Price Index (CPI) is forecast to drop by a tenth to 3.5%.
AUD/USD Price Forecast: Technical Outlook
In the daily chart, AUD/USD trades at 0.7150, maintaining a bullish near-term bias as spot holds above the clustered 50-, 100- and 200-day simple moving averages (SMAs) around 0.7001. The pair is also supported by rising trend lines coming in below 0.7000, while the relative strength index (RSI) at 65 suggests firm but not yet extreme upside momentum as price grinds higher within the broader uptrend.
On the topside, initial resistance is seen near the upward-sloping trend barrier around 0.7320, with the longer-term descending trend line from 0.8015 and subsequent broken trend levels at 0.8472 and 0.9208 likely to cap any extended advance. On the downside, immediate support is located at the current price area around 0.7150, ahead of the SMA cluster near 0.7001; a deeper pullback would expose the next structural floors at the rising trend supports around 0.6983 and 0.6894.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.
Nothing in this material constitutes investment advice, personal recommendation, investment research, an offer, or a solicitation to buy or sell any financial instrument. The content has been prepared without consideration of your individual investment objectives, financial situation, or needs, and should not be treated as such.
Past performance is not a reliable indicator of future performance and/or results. Forward-looking scenarios or forecasts are not a guarantee of future performance. Actual results may differ materially from those anticipated.
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