The Australian Dollar (AUD) outperformed its major peers, rising 0.35% to near 0.7262 against the US Dollar (USD) during Thursday's European session, driven by optimism surrounding potential peace between the US and Iran and the reopening of the Strait of Hormuz, a key energy passageway. This risk-on sentiment was further fueled by reports from Al-Hadath that 'intense communications are ongoing to gradually reopen the Strait of Hormuz,' with expectations of a breakthrough for stranded ships in the coming hours [1]. The AUD was the strongest against the Japanese Yen, and only lagged behind the New Zealand Dollar (NZD) [1]. S&P 500 futures posted fresh all-time highs at 7,382, while the US Dollar Index (DXY) traded 0.12% lower at 97.90 [1].
Philip Wee at DBS Group Research highlighted that AUD/USD's break above 0.72 was notable, especially after the Reserve Bank of Australia (RBA) signaled a pause following three consecutive rate hikes. The risk-on rotation favored commodity-linked and high-yield currencies, including AUD, KRW, and GBP. Markets may rotate to NZD/USD, which broke above its 0.5925 resistance, on expectations that the Reserve Bank of New Zealand will follow the RBA’s lead and hike before the Fed later this month [2].
The US Dollar Index extended its losses for the second day, trading around 97.90, and technical analysis suggests a bearish bias with the DXY potentially testing the two-month low of 97.62 recorded on May 6. The index may fall further toward 96.70 and 96.49, with resistance at 98.28 and 98.66 [3]. The US Dollar was the weakest against the NZD, and lost about 0.5% for the day, while Wall Street's main indexes rose between 1.3% and 2.1% [4]. Iran is expected to officially respond to the US proposal for ending the conflict on Thursday, and US stock index futures traded modestly higher, with the USD Index staying below 98.00 [4].
MUFG’s Lloyd Chan noted that the US Dollar softened as DXY retested support near 97.60 and US 10-year yields fell around 8bp to 4.35%. Brent crude prices dropped to around $100/bbl, down nearly 20% from their April 30 intraday high of $126.41/bbl. The S&P 500 reached new highs, helping to contain the dollar's decline. MUFG sees the Federal Reserve more likely to delay rate cuts than resume hikes over the next year, citing a policy dilemma from mixed US data: April ADP employment rose to +109k from +61k in March, but ISM services prices paid hit a three-year high while employment remained in contraction [5]. The US has reportedly presented Iran with a memorandum of understanding aimed at de-escalating tensions and gradually reopening the Strait of Hormuz, with Iran committing to a moratorium on nuclear enrichment in exchange for US sanctions relief [5].
Looking ahead, the major trigger for the AUD/USD pair will be the US Nonfarm Payrolls (NFP) data for April, expected to show 60K new jobs versus 178K in March, with the unemployment rate seen steady at 4.3% [1]. Investors will closely monitor this data for cues on the Federal Reserve’s monetary policy outlook.
CONCLUSION
The Australian Dollar has surged amid risk-on sentiment driven by US-Iran peace hopes and a retreating US Dollar, with equities and commodity-linked currencies benefiting. Technical and analyst commentary suggest continued downside risk for the USD, while the AUD remains supported by both central bank signals and global risk appetite. The upcoming US NFP data will be a key determinant for further market direction.