Insights 
VT 
The Australian Dollar has seen a decrease in value, affected by tensions in the Middle East and lacklustre employment data from Australia. Recent comments from Fed Chair Powell also boosted the US Dollar, impacting the Aussie.
The conflict between Israel and Iran has led to a move towards safer assets, causing the Australian Dollar to fall 0.6% and approach a key valuation range. Unemployment data in Australia showed no change in the jobless rate but a drop in employment.
impact of federal reserve policies
The Federal Reserve’s decision to hold interest rates, alongside projections for rate cuts, initially offered support. However, Powell’s remarks on tariff impacts led to a stronger US Dollar.
Several factors affect the Australian Dollar’s movements, including RBA interest rates, the price of Iron Ore, and China’s economic health. The Trade Balance also plays a role, with a positive balance likely to strengthen the Australian Dollar.
When China’s economy performs well, it boosts the demand for Australian resources, elevating the Dollar. Meanwhile, fluctuations in Iron Ore prices can directly impact the currency’s value, supporting it when prices rise and pressuring it when they fall.
That the Australian Dollar saw a drop isn’t entirely surprising given recent developments. Escalating tensions in the Middle East have pushed investors to shift their money into safer currencies, dragging risk-sensitive ones like the Aussie lower. On paper, the Australian labour market looked flat — the unemployment figure came in steady — but the details tell another story. Fewer people are employed, which undermines any sense of stability. Not a great signal for confidence.
Simultaneously, remarks from Powell caused ripples. While the Federal Reserve held policy steady and outlined potential cuts earlier in the year, his more recent comments introduced doubts. His suggestion that tariffs could weigh on inflation, combined with resilient US economic data, gave a renewed push to the US Dollar. That makes holding onto anything else — especially a commodity-linked unit — less appealing.
external influences on the australian dollar
We’ve seen this kind of pattern before. Uncertainty abroad triggers demand for havens. Softer domestic numbers here tip the balance further against us. Add to that a central bank in the US that continues to speak with a hawkish tone, and the pressure builds quickly.
The situation in China still sits high on the list of external drivers. Iron Ore remains Australia’s largest export, and Beijing’s success or failure in managing industrial growth will ripple across to our domestic currency. When China’s growth appears stable and demand for construction materials rises, our trade numbers benefit — and speculation often brings that into forward prices fast. But when it slows, as has been hinted by softer manufacturing data this quarter, the demand calculation shifts sharply.
Traders shouldn’t ignore the Trade Balance either. It continues to provide a key source of strength — but only if net exports remain elevated. A strong surplus usually translates into more support for the Australian Dollar. If commodity prices waver and foreign demand slides, we won’t be able to lean on that surplus much longer.
Short-term positioning from now seems dependent on two things: the recalibration of expectations around interest rates in the US and how firmly China can anchor its recovery. For now, markets are likely to remain jittery. Volatility is to be expected when the geopolitical picture remains fluid, and when confidence in growth among key partners isn’t yet assured.
Given that level of uncertainty, pricing in rates or skewing risk must be rooted in data — not sentiment. Watching bond yield spreads between the US and Australia will continue to offer timely clues on direction. And keeping an eye on Chinese industrial production numbers alongside Australian export figures will offer more forward-looking indicators than lagging inflation prints or currency headlines.
