AUD/USD firmed to about 0.7075 in early Asian trade on Monday as risk appetite improved after reports that the US and Iran agreed a peace deal to end their nearly four-month war. Bloomberg said Washington and Tehran reached an accord to reopen the Strait of Hormuz, while both sides declared an immediate and permanent end to military operations on all fronts, including in Lebanon. The focus now shifts to the Reserve Bank of Australia interest rate decision due on Tuesday.
Iran’s National Security Council confirmed a ceasefire agreement with the US and said final talks on a broader deal would begin once commitments under a memorandum of understanding are met. Iranian officials said the maritime blockade would end immediately and entirely, and Mehr News Agency reported the US naval blockade would lift fully within 30 days, with the Strait of Hormuz reopening within 30 days under Iranian arrangements. Markets are positioned for the RBA to keep its key rate unchanged for the first time this year, after money markets pared expectations for further tightening.
Impact Of Geopolitical Developments On AUD/USD
We are seeing a classic risk-on move with the US-Iran peace deal, which should push AUD/USD higher in the immediate term. The sharp drop in expected market volatility, likely reflected in the VIX falling from recent highs, makes buying call options on the pair attractive. This strategy allows us to capture the upside from the positive sentiment while defining our risk.
The reopening of the Strait of Hormuz, a vital channel for roughly 20% of the world’s daily oil supply, is the most critical factor here. We expect Brent crude prices to fall sharply, potentially back towards the $80-$90 per barrel range seen before the conflict began. Lower energy costs will ease global inflation fears and support growth-sensitive currencies like the AUD.
RBA Decision And Trading Strategy
However, we must be cautious ahead of the Reserve Bank of Australia’s decision this Tuesday. While Australian inflation has moderated, the latest quarterly figures from the Australian Bureau of Statistics showed it remains sticky at 3.6%, well above the RBA’s target. A dovish pause, which markets are beginning to price in, could immediately cap the Aussie’s rally around the 0.7100 level.
Given this conflict, our strategy should focus on the very short term. We are looking at weekly AUD/USD call options to capitalize on the positive geopolitical news flow leading into the RBA meeting. If Governor Bullock’s statement confirms the pause is temporary and maintains a hawkish bias, the AUD could break higher; otherwise, we will look to close our positions.
