- AUD/USD stalls the previous day’s modest pullback from the 0.7200 neighborhood.
- The Israel-Lebanon ceasefire and Iran diplomacy hopes underpin the risk sentiment.
- The hawkish RBA also supports the Aussie, albeit a modest USD uptick caps gains.
The AUD/USD pair holds steady above mid-0.7100s during the Asian session on Friday and for now, seems to have stalled the previous day’s modest pullback from its highest level since June 2022. Spot prices remain on track to register strong weekly gains amid a supportive fundamental backdrop.
The announcement of a ceasefire between Israel and Lebanon fuels hopes for a US-Iran peace deal and remains supportive of the upbeat market mood. This, along with the Reserve Bank of Australia’s (RBA) hawkish outlook, continues to act as a tailwind for the Aussie. In fact, RBA Deputy Governor Andrew Hauser said earlier this week that the central bank is focused on preventing any lift in medium-term inflation expectations, reaffirming bets for further policy tightening in 2026. The current market pricing suggests a 65% chance of a rate hike in May, which, in turn, is seen as a key factor supporting the AUD/USD pair.
Meanwhile, Finance Ministers from the Group of Seven (G7) emphasized the urgent need to limit the economic repercussions of an ongoing Middle East conflict. Furthermore, the instability in the Strait of Hormuz keeps a lid on the optimism led by potential US-Iran peace talks. This assists the safe-haven US Dollar (USD) in preserving the previous day’s modest recovery gains from its lowest level since late February and might cap the AUD/USD pair. Hence, it will be prudent to wait for some follow-through buying before positioning for the resumption of the pair’s uptrend witnessed over the past three weeks or so.
Any meaningful USD appreciation, however, seems elusive in the wake of diminishing odds for a rate hike by the US Federal Reserve (Fed). Traders might also refrain from placing aggressive directional bets and opt to wait for another round of talks between the US and Iran, possibly this weekend. Nevertheless, the aforementioned supportive fundamental backdrop suggests that the path of least resistance for the AUD/USD pair is to the upside, and any corrective pullback is more likely to be bought into. Traders now look forward to speeches from influential FOMC members, which will drive the USD and provide some impetus.
