Australian Dollar steadies as traders brace for Trump’s Iran deadline

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AUD/USD steadies after registering modest gains in the previous trading day, hovering around 0.6920 during the Asian hours on Tuesday. The pair shows limited movement following the release of Australia’s S&P Global Purchasing Managers’ Index (PMI) data.

AUD/USD moves little after Australia’s S&P Global PMI data release.
S&P Global Australia Services PMI fell to 46.3 in March from 52.8 in February, marking a sharp contraction in activity.
Traders closely monitor President Trump’s deadline related to the Strait of Hormuz.

The seasonally adjusted S&P Global Australia Services PMI registered 46.3 in March, falling sharply from 52.8 in February. The contraction in activity was significant and marked the steepest decline since November 2023. Meanwhile, the Composite PMI declined to 46.6 in March from 52.4 in February, indicating a contraction in private sector business activity for the first time in eighteen months.

Andrew Harker, Economics Director at S&P Global Market Intelligence, stated, “The S&P Global Australia Services PMI data for March illustrate the impact of the war in the Middle East on companies, and the findings are concerning. The effect on prices was also evident amid widespread reports of rising fuel costs, which drove inflation higher, particularly in the transport and storage sector.”

Furthermore, the AUD/USD pair remains stable as traders keep a close watch on US President Donald Trump's deadline concerning the Strait of Hormuz. Trump warned that he could target Iranian power plants and bridges unless his demands are met by 8 p.m. Eastern Time.

The Institute for Supply Management (ISM) reported on Monday that the Services PMI eased to 54.0 in March from 56.1 in February. The figure came in below expectations of 55.0, signaling a slight loss of momentum in the sector.

Australian Dollar FAQs

What key factors drive the Australian Dollar?

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 do the decisions of the Reserve Bank of Australia impact the Australian Dollar?

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.

How does the health of the Chinese Economy impact the Australian Dollar?

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.

How does the price of Iron Ore impact the Australian Dollar?

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.

How does the Trade Balance impact the Australian Dollar?

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.