07.04.202601:48 Forex Analysis & Reviews: AUD/USD: Fragile Growth That Cannot Be Trusted

The Australian dollar showed an upward trend against the US dollar on Monday, following a two-day consecutive decline last week. The movement of AUD/USD is driven by geopolitical factors: the recent downturn has shifted to growth amid changing market sentiments. While risk-averse sentiment prevailed on Friday, on Monday, market interest in risk increased. However, the situation remains uncertain, making both buying and selling AUD/USD equally risky. The spring of expectations has been coiled so tightly that it is set to "spring" no matter what. The only question is which direction it will take—towards buyers or sellers of the Aussie.

So, the main intrigue right now revolves around one single question: Will the US and Iran agree to a temporary ceasefire, or will the situation in the Middle East escalate further? As is well known, over the weekend, the US President set a deadline for the reopening of the Strait of Hormuz in Iran, threatening strikes on energy infrastructure. This ultimatum now expires on Tuesday, April 7 (although the "X hour" was initially set for Monday). At the same time, reports have emerged that the US, Iran, and intermediaries are discussing a 45-day ceasefire during which the parties will discuss a final resolution to the conflict.

The future direction of the AUD/USD pair will depend on which scenario unfolds. If the parties agree to a ceasefire and restart negotiations, geopolitics will take a back seat. Market interest in risk will increase, allowing the Australian dollar to significantly strengthen against the greenback. In this case, traders will "remember" the factual divergence between the monetary policies of the RBA and the Fed, which plays in favor of the Aussie.

Even in the current context, this fundamental factor remains relevant. Although the Federal Reserve has declared a wait-and-see stance (effectively ruling out rate cuts in April and June), it has not ruled out a rate increase. Moreover, the American central bank still allows for a rate cut by the end of the current year. Despite the Middle Eastern conflict and the ensuing energy crisis, the updated March dot plot has remained unchanged — the majority of committee members forecast one round of monetary easing in 2026.

The Reserve Bank of Australia, for its part, continues to maintain a hawkish rhetoric, even amid a slight slowdown in inflation in February. RBA members have reasonably concluded that the "February retreat" in CPI occurred solely due to a sharp seasonal drop in travel costs and a temporary dip in fuel prices. Thus, despite the slight slowdown in February, the average monthly growth rate for the quarter is likely to exceed the RBA's target values.

In other words, if we exclude the geopolitical factor, the overall fundamental picture for the AUD/USD pair tilts in favor of the Aussie. However, if the war in the Middle East escalates to a new level, the divergence in monetary policies between the Fed and the RBA will take a back seat— the safe dollar will again be in higher demand. This is why any trading decisions regarding the AUD/USD pair appear risky at this time: the balance could tilt either way, with all the consequences that follow.

According to some experts, Washington is indeed prepared to scale back its military operations in the Middle East, but only on the condition of "saving face." The question is whether Iran has similar goals. The intrigue remains. An Iranian foreign ministry spokesman stated that Tehran has prepared its response to the US proposal to end the war, "which will be announced later."

We will soon find out whether the parties are genuinely positioned to move to the first stage of conflict resolution or if all of this is merely a "smokescreen" before further escalation. The wait is short: Tuesday, April 7, Donald Trump will either order a massive airstrike on Iranian energy infrastructure or postpone the deadline for his ultimatum again. Alternatively, the parties may indeed announce a 45-day ceasefire, essentially restarting the peace negotiations that were interrupted at the end of February.

In other words, the situation today remains uncertain—one might say, "on the edge." Yet there are signs that the parties could reach an agreement at the last moment. Under these circumstances, both buying and selling AUD/USD appear unreliable. The world is on the brink of significant events. Whether these will be escalatory or de-escalatory will become clear very soon.