The Australian dollar extended its advance on Tuesday, gaining 1.8% over two sessions to touch a four-week high of 0.7120 against the US dollar, as signs of possible peace talks between Washington and Tehran reduced demand for the greenback and other safe-haven currencies.
The move pushed the Aussie closer to its 2026 peak near 0.7187, with traders weighing geopolitical headlines against stronger-than-expected US inflation data and a still-hawkish Federal Reserve.
Prospects of US–Iran talks dampen safe-haven demand
Media reports indicated delegations from the United States and Iran could meet in Pakistan to restart negotiations, triggering a broad pullback in safe-haven currencies and supporting risk-sensitive units such as the Australian dollar.
A US State Department spokesperson later confirmed that preliminary discussions about a potential meeting in Islamabad are underway, while stressing that no final arrangements have been made. The confirmation reinforced the view that the geopolitical risk premium underpinning the US dollar has eased, at least for now.
Earlier comments from President Donald Trump that Iran had reached out to “work on a deal” had already boosted market sentiment, raising expectations that recent hostilities might cool.
Strong US producer prices revive Fed-tightening narrative
The supportive geopolitical backdrop clashed with fresh US data pointing to persistent price pressures. The March Producer Price Index (PPI) rose 4.9% year-on-year, above the expected 4.6% and faster than the prior 3.4% reading, marking the strongest producer inflation in more than a year.
In follow-up remarks, Federal Reserve Governor Christopher Waller said the data show “persistent” inflation pressures and leave little room for policy easing in the near term. His stance highlights a clear contrast with the more dovish tone signaled by the Reserve Bank of Australia (RBA) last month.
This widening policy divergence complicates the outlook for the AUD/USD pair, as geopolitical relief and risk appetite support the Aussie while stronger US inflation underpins the dollar.
Weak Australian confidence overshadowed by global factors
Domestic data did little to sway the currency. Westpac’s Australian consumer confidence index fell sharply to -12.5% in April from 1.2% in March, hitting a six-year low. Despite the downbeat signal on household sentiment, the Aussie’s reaction was muted as markets focused on global risk drivers and US policy expectations.
Focus shifts to Australian labour market data
Attention is now turning to Thursday’s Australian employment report. A recent survey of economists points to a rise in the unemployment rate to 4.1% from 3.9%.
Traders see the jobs data as a potential turning point. A weaker-than-expected labour print could quickly undermine the Australian dollar’s recent gains, which have been built largely on external geopolitical and macroeconomic developments rather than domestic strength.
Outlook for AUD/USD
With AUD/USD trading near 0.7120 and eyeing resistance around the year-to-date high of 0.7187, the pair faces competing forces:
- easing US–Iran tensions and fading safe-haven demand,
- stronger US inflation and a firm Fed rate stance,
- a softer Australian macro backdrop and looming labour data.
Whether the currency can break above its recent peak will likely depend on how long risk appetite holds up in the face of resilient US inflation and the prospect of higher-for-longer US interest rates.
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