AUD/USD Outlook: Energy Shock Shifts Market Focus from the Reserve Bank of Australia to Global Risks

Huitong Finance App News— During Tuesday’s (April 7) European session, Iran has a final deadline to reopen the Strait of Hormuz, which is the core risk event affecting the Australian dollar to U.S. dollar exchange rate today. Trump warned that if Iran fails to meet its commitment before 20:00 p.m. Eastern Time on Tuesday, the U.S. military will strike Iran’s power plants and bridges. This scenario implies a clear escalation in geopolitical conflict, and the risk of a long-term interruption to energy supply will rise significantly.

This risk continues to outweigh the economic fundamentals that would otherwise be supportive for the Australian dollar domestically.

Australian inflation surges, consumption remains resilient

Affected by the Iran conflict, Australia’s inflation problem has further worsened. The Melbourne Institute’s inflation indicator surged 1.3% month over month in March, the biggest single-month increase since records began. The year-over-year growth rate rose to 4.3%. Higher oil prices are the main driver behind the inflation uptick in this round, but if the situation persists, inflation could also create a second-round transmission effect through wages and inflation expectations.

Meanwhile, household consumption remains resilient. Australia’s Bureau of Statistics data for February showed that nominal consumption increased 0.3% month over month, with discretionary services consumption still the main contributor.

It is precisely the combined performance of inflation and consumption that leads traders to price in the possibility of the Reserve Bank of Australia delivering further rate hikes, even as there is clear downside pressure on economic activity. The market expects the RBA to raise rates by 25 basis points in May with a probability of about 75%. If that comes to fruition, it would mark the third consecutive rate hike, bringing the cash rate back to 4.35%—the peak level of the previous tightening cycle—and the market is still pricing in the possibility of additional hikes going forward.

Under normal circumstances, these fundamentals should have supported a stronger AUD/USD, but this time they do not.

Market risk appetite dominates the AUD/USD direction

Regarding the Strait of Hormuz’s final deadline, the market widely expects Trump will once again push for a de-escalation; otherwise, the Australian dollar would have already fallen sharply. Although price action suggests a higher probability of conflict de-escalation, for the Australian dollar, what matters is how outcomes are distributed across different scenarios.

If the conflict escalates, it will directly threaten energy supply, weigh on global economic growth, and thereby suppress any upside in AUD/USD. Even if the probability of this scenario is relatively low, once it materializes, the impact on the exchange rate would be extremely severe.

The above judgment is also confirmed by correlation analysis: over the past week, the correlation between AUD/USD and the AUD-U.S. two-year interest rate differential fell to -0.25. Over the past month and the past quarter, it was only 0.15 and 0.13, meaning the relationship is basically failing; in contrast, its linkage with U.S. Treasury yields is much stronger.

And the most sensitive factor for the Australian dollar right now is market risk appetite. Over the past week, the correlation between AUD/USD and Nasdaq and S&P 500 stock index futures was close to 0.9, indicating that as market attention shifted from the initial energy price shock to the impact on global growth, the Australian dollar is still being traded under a pro-cyclical asset logic.

Energy risk changes the macro trading logic

Since the outbreak of the conflict, the energy channel has remained the core factor influencing the Australian dollar: initially, the Australian dollar outperformed other currencies due to improved commodity trade conditions, then it returned to its traditional role and became a barometer of market risk appetite and global economic prospects.

The United States is affected far less by an energy supply disruption than Australia is; therefore, the U.S. market focuses more on inflation issues. Also, U.S. energy is largely self-sufficient, so even if prices rise, supply can still be ensured. In Australia, diesel, gasoline, and jet fuel are highly dependent on imports, and the market’s worry is not only that rising oil prices push inflation higher, but also the impact of actual supply shortages on economic activity.

This also explains why, despite higher energy prices and rising expectations for RBA rate hikes, it has not translated into a stronger Australian dollar. Combined with a worsening macro environment and elevated market volatility, continued upside momentum for the Australian dollar faces resistance.

Technical analysis: no need for overly complex interpretation

(AUD/USD daily chart Source: Yihuitong)

In the short term, technical signals are almost certain to be overridden by the geopolitical situation. The key depends on whether Trump helps broker another de-escalation of the conflict.

If the situation de-escalates, 0.6950 is the first key resistance level. This price area has repeatedly acted as support and resistance in recent sessions. After the exchange rate broke above it, there was a sharp reversal, so risk control needs to come first. If it can hold effectively above 0.6950, it will target the 50-day moving average, which is the last key resistance level before the break above the March high of 0.7160.

If the U.S. military strikes Iran’s infrastructure and the conflict significantly escalates, with heightened risk of a long-term interruption to energy supply, AUD/USD will face substantial downside pressure. The short-side targets are 0.6835 (the 100-day moving average), 0.6800, and the 200-day moving average.

From momentum indicators, the 14-period Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) are both diverging from recent lows. However, purely from a technical perspective, the bias still leans toward selling rallies. The RSI remains below the neutral 50 line. While the MACD may cross above the signal line, it is still trapped in negative territory.

At 19:05 Beijing time, AUD/USD is at 0.6928/29, up 0.19%.

(Editor: Wang Zhiqiang HF013)

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