AUD/USD Retreats on Hormuz Tensions, Strong Aussie PMI

Key Moments

Risk-Off Tone Weighs on AUD/USD

The AUD/USD pair reversed earlier strength and moved into negative territory during the Asian session on Thursday, trading around 0.7145, down 0.24%. Selling pressure emerged as investors shifted to a risk-averse stance following Iranian attacks on three ships in the Strait of Hormuz, a critical chokepoint for nearly 20% of global energy flows.

Concerns about the potential closure or disruption of traffic through Hormuz pushed oil-related risks back to the forefront for global markets, undermining currencies tied to risk sentiment such as the Australian Dollar.

Market Mood and U.S. Dollar Dynamics

As of writing, S&P 500 futures are trading 0.53% lower, near 7,100, underscoring weaker risk appetite. At the same time, the US Dollar Index (DXY), which tracks the Greenback’s performance against six major peers, is up 0.1% to around 98.70, marking its highest level in more than a week.

According to a report from The Wall Street Journal (WSJ), Tehran fired on three ships in the Hormuz and escorted two of them to Iranian waters, and is bringing those ships to Iran.

Although an extension of the US-Iran ceasefire has reduced immediate fears of renewed military escalation, the risk of higher oil prices linked to possible constraints in the Strait of Hormuz continues to pressure currencies of economies dependent on imported energy.

Australian PMI Data Turns Back to Expansion

On the macro front, Australian flash S&P Global Purchasing Managers’ Index (PMI) readings for April showed improvement compared with the prior month. The Composite PMI returned to expansionary territory above the 50.0 mark, rising to 50.1 from 46.6 in March.

The report indicated that overall business activity improved as both manufacturing and services sectors registered higher output, providing a domestic economic offset to the broader risk-driven weakness in the Australian Dollar.

Australian Dollar Performance Snapshot

Australian Dollar Price Today

The article notes that the Australian Dollar was the weakest against the US Dollar among the listed major currencies. The description also refers to a heat map that illustrates percentage changes of major currencies against each other, with the base currency taken from the left column and the quote currency from the top row. For example, selecting the Australian Dollar along the left column and moving horizontally to the US Dollar would show the percentage change for AUD (base)/USD (quote).

AUD/USD Technical View

From a technical standpoint, AUD/USD is trading near 0.7145 and maintains a constructive near-term bullish bias as long as it stays above the 20-period Exponential Moving Average (EMA) at 0.7086. The pair’s recent rebound from levels below 0.70 keeps the short-term trend underpinned while spot remains above this moving average.

The Relative Strength Index (RSI) is around 60, holding in positive territory without entering overbought conditions. This suggests that upward momentum persists, though it has not yet become overstretched.

On the downside, immediate support is located at the 20-period EMA at 0.7086. A clear break below this level would indicate waning bullish momentum and could pave the way for a deeper retracement toward recent lows. As long as AUD/USD defends this support on a closing basis, the technical setup continues to favor buying on dips with potential for further gains in upcoming sessions.

On the upside, a multi-year high at 0.7222 represents the primary resistance. A decisive move above that barrier would open the door for an extension of the rally toward 0.7300.

Understanding Risk Sentiment and Currencies

What do the terms “risk-on” and “risk-off” mean when referring to sentiment in financial markets?

In the world of financial jargon, the two widely used terms “risk-on” and “risk off’’ refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market, investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

What are the key assets to track to understand risk sentiment dynamics?

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

Which currencies strengthen when sentiment is “risk-on”?

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

Which currencies strengthen when sentiment is “risk-off”?

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.