AUD/USD holds losses around 0.7130 amid a sour market mood

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The Australian Dollar (AUD) posts marginal gains against the US Dollar (USD) on Friday, but remains near 10-day lows of 0.7110, with upside attempts capped below 0.7135 so far.

AUD/USD consolidates around 0.7130 after dropping from weekly highs at 0.7185.
Growing geopolitical tensions have been buoying the safe-haven USD this week.
FX analysts at UOB expect the pair to oscillate between 0.7080 and 0.7180 in the coming weeks.

The Australian Dollar (AUD) posts marginal gains against the US Dollar (USD) on Friday, but remains near 10-day lows of 0.7110, with upside attempts capped below 0.7135 so far. A stronger US Dollar amid fading hopes of an imminent peace deal in Iran is keeping speculative traders away from the Aussie.

Risk-sensitive assets like AUD are on their back foot on Friday, as tensions in the Middle East escalate. US President Trump urged Tehran to sign a peace deal, while Israel said that it is waiting for a “US green light” to restart its attacks on Iran.

Tehran, on the other hand, has threatened with an “eye for an eye” warning that they will target oilfields in Gulf countries allied with the US, if Iranian energy sites are attacked.

In this context, all eyes will be on the conference by US Defense Secretary Pete Hegseth and the Chair of the Joint Chiefs of Staff, Dan Caine, who are expected to explain the Operation Epic Fury against Iran on Friday at 08:00 ET (12:00 GMT).

From a wider perspective, the AUD/USD pair keeps trading in a range after rejection at the 0.7220 area in mid-April. FX analysts at UOB expect this trend to extend over the next few weeks: “In our most recent narrative from Monday (20 Apr, spot at 0.7130), we highlighted that the current price movements are likely part of a range-trading phase between 0.7060 and 0.7210. Since then, AUD has traded in a relatively quiet manner. We continue to expect range trading, but a narrower range of 0.7080/0.7180 is likely enough to contain the price movements for now."

Risk sentiment FAQs

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.