Key Moments
- AUD/USD traded near 0.7025 in early Asian hours on Thursday, edging above the 0.7000 level.
- US President Donald Trump and Iran’s President Masoud Pezeshkian electronically signed a memorandum of understanding to end the US and Israel’s war on Iran.
- The Fed kept its benchmark rate at 3.5%-3.75%, while the RBA held its Official Cash Rate at 4.35% after earlier hikes.
Risk Sentiment Lifts AUD/USD
The AUD/USD pair traded firmer around 0.7025 during the early Asian session on Thursday, extending its move above the 0.7000 handle. Market optimism linked to a US-Iran peace initiative lent support to risk-linked currencies, including the Australian Dollar (AUD), against the US Dollar (USD). Investors were also awaiting the release of the US Initial Jobless Claims report later in the day.
According to Reuters, US President Donald Trump and Iran’s President Masoud Pezeshkian electronically signed a memorandum of understanding late Wednesday aimed at ending the US and Israel’s war on Iran. Pakistan’s prime minister, Shehbaz Sharif, stated that the US-Iran agreement is taking “immediate effect” after the signatures from both parties.
Washington and Tehran are expected to formally sign the memorandum in Geneva on Friday. Positive developments surrounding the peace agreement could undermine a safe-haven currency like the Greenback and create a tailwind for the pair.
Monetary Policy: Fed and RBA in Focus
On the policy front, the US Federal Reserve delivered a hawkish-leaning hold. The Federal Open Market Committee (FOMC) voted unanimously on Wednesday to maintain the benchmark overnight borrowing rate in a 3.5%-3.75% range at its June meeting. The federal funds rate has remained at this level since the US central bank cut rates by three-quarters of a percentage point in the latter part of 2025. These policy signals may help curb deeper losses in the USD even as risk sentiment improves.
In Australia, the Reserve Bank of Australia (RBA) concluded its June meeting on Tuesday by keeping the Official Cash Rate (OCR) unchanged at 4.35%. This decision marked a pause following three consecutive 25 basis point increases earlier in the year.
| Central Bank | Latest Decision | Policy Rate / Range | Timing / Context |
|---|---|---|---|
| Federal Reserve (FOMC) | Hold | 3.5%-3.75% | June policy meeting; rate unchanged since a three-quarters of a percentage point cut in late 2025 |
| Reserve Bank of Australia (RBA) | Hold | Official Cash Rate at 4.35% | June meeting; pause after three consecutive 25 bps hikes earlier this year |
(This story was corrected on June 18 at 01:30 GMT to say, in the third paragraph, that positive developments surrounding the peace agreement could undermine a safe-haven currency like the Greenback and create a tailwind for the pair, not headwind.)
Australian Dollar: Key Drivers Explained
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.
How RBA Policy Moves Affect 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, Iron Ore, and Trade Balance: Structural Supports
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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