- The Australian dollar is cutting losses after a strong decrease due to risk aversion.
- Israel’s attack to Iran has driven the US dollar and other safe assets.
- The pair is struggling to return above an anterior support zone at 0.6500.
The Australian dollar is cutting some losses after a strong descent earlier today, since the news that Israel bombarded Iranian nuclear and military sites triggered a security search, causing risk -sensitive assets, such as the AUD, such as the AUD, to fall.
The AUD/USD depreciated almost 1% during Friday’s first operations, reaching a week of one week just above 0.6450. The torque is trying to recover lost ground during the European trading session, however, the upward attempts are being limited below an anterior support level in the 0.6500 area.
Tensions in the Middle East have crushed appetite for risk
Israel attacked Iran with an unprecedented force earlier on Friday, hitting nuclear sites in Tehran and killing officials of the Revolutionary Guard. Iran reacted by launching a drone attack against Israel and abandoning nuclear conversations with the US scheduled for next Sunday.
The risk of a regional conflict in the area adds a new layer of uncertainty to an already problematic global panorama. The commercial agreement between the US and China failed to convince investors earlier this week, and Trump has threatened to impose higher tariffs on all partners if an agreement is not reached before July 9, a highly adverse scenario for the AUD sensitive to risk.
In the macroeconomic front, the expectations of inflation of the Australian consumer jumped to 5% in June, from 4.1% in May, moving the hopes of a rate cut in July. In the US, on the other hand, the soft figures of the PPI confirmed that the impact of prices tariffs is yet to come, and the hopes of a Fed cut in September were still alive.
Faqs Australian dollar
One of the most important factors for the Australian dollar (Aud) is the level of interest rates set by the Australian Reserve Bank (RBA). Since Australia is a country rich in resources, another key factor is the price of its greatest export, iron mineral. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and commercial balance. The feeling of the market, that is, if investors are committed to more risky assets (Risk-on) or seek safe shelters (Risk-Off), it is also a factor, being the positive risk-on for the AUD.
The Australian Reserve Bank (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 the interest rates of the economy as a whole. The main objective of the RBA is to maintain a stable inflation rate of 2% -3% by adjusting the interest rates or the low. Relatively high interest rates compared to other large central banks support the AU, and the opposite for the relatively low. The RBA can also use relaxation and quantitative hardening to influence credit conditions, being the first refusal for the AU and the second positive for the AUD.
China is Australia’s largest commercial partner, so the health of the Chinese economy greatly influences the value of the Australian dollar (Aud). When the Chinese economy goes well, it buys more raw materials, goods and services in Australia, which increases the demand of the AU and makes its value upload. The opposite occurs when the Chinese economy does not grow as fast as expected. Therefore, positive or negative surprises in Chinese growth data usually have a direct impact on the Australian dollar.
Iron mineral is the largest export in Australia, with 118,000 million dollars a year according to data from 2021, China being its main destination. The price of iron ore, therefore, can be a driver of the Australian dollar. Usually, if the price of iron ore rises, the Aud also does, since the aggregate demand of the currency increases. The opposite occurs when the price of low iron ore. The highest prices of the iron mineral also tend to lead to a greater probability of a positive commercial balance for Australia, which is also positive for the AUD.
The commercial balance, which is the difference between what a country earns with its exports and what it pays for its imports, is another factor that can influence the value of the Australian dollar. If Australia produces highly requested exports, its currency will gain value exclusively for the excess demand created by foreign buyers who wish to acquire their exports to what you spend on buying imports. Therefore, a positive net trade balance strengthens the AUD, with the opposite effect if the commercial balance is negative.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
