Defensive discipline & clinical counter attacks secure Australian dollar above 0.7000

After multiple false starts, the US and Iran have finally landed on a substantive interim resolution framework. This is not a final settlement, but it is nevertheless good news for risk assets and the Australian dollar - certainly enough to arrest the breakdown over the last month that has seen it slip from highs above 0.7270 mid-May to lows through 0.7000 last week. A jam-packed week ahead is headlined by central bank meetings including the RBA, FOMC, BoJ and the BoE.

Deal optimism lifts Australian dollar back above 0.7000

US- Iran deal: enough to stabilise risk, not the endgame

After multiple false starts, the US and Iran have finally landed on a substantive interim resolution framework, with an official signing ceremony set for 19 June in Switzerland. The exact terms have not been published (yet) and some of the thorniest issues - notably Iran’s nuclear program, sanctions relief and the release of frozen funds - have been pushed into a 60 day negotiation window.

AUD finds a floor as geopolitics stabilise

This is not a final settlement, but it is nevertheless good news for risk assets and the Australian dollar - certainly enough to arrest the breakdown over the last month that has seen it slip from highs above 0.7270 mid-May to lows through 0.7000 last week.

This situation is fast moving and conditions looked very different this time last week. Negotiations stalled last week and hot war hostilities resumed for several days. That backdrop, alongside a re-energised US exceptionalism narrative in the wake of a solid May US non-farm payrolls, saw the Australian dollar trade heavy for a good part of last week. The psychological 0.7000 level gave way and the Australian dollar traded down to a low of 0.6979, a two-month low.

But President Trump called off further strikes late last week, declaring that, "a deal is almost done", for the umpteenth time. The fatigue here is real, but there was enough reporting from credible sources to suggest substantive progress, rather than headline noise.

That was enough for the Australian dollar to retake 0.7000 late last week and settle at 0.7047 on Friday night, net-net leaving it unchanged for the week as a whole. Promising deal headlines today have seen the Australian dollar settle higher still in local APAC trade Monday: 0.7080.

Reports suggest that from here, Iran will reopen the Strait and the US will begin lifting its naval blockade on Iranian ports, a process that is to be completed within 30 days of signing. Iran is anticipating a temporary oil-sanctions waiver, and the release of USD25 billion of frozen assets through direct transfers, regional cooperation and credit lines. The UAE has already unlocked USD10bn.

On the nuclear side, Iran is expected to pledge not to produce or acquire nuclear weapons, freeze further enrichment, and negotiate within 60 days how to handle its highly enriched uranium stockpile.

Reporting from Pakistan suggests that the deal also involves the immediate and permanent end of hostilities on all fronts, including in Lebanon.

There are admittedly competing accounts of the draft MOU, and Israel is not a party to the deal, meaning the Lebanon front could still destabilise the US-Iran deal. The really hard yards over negotiating Iran’s Tehran’s nuclear program have only just began too.

Markets respond: oil down, risk bid

Even so, Brent crude is down more than USD4/bbl today (-5%) to $83.1/bbl, its lowest levels since the start of the war in late February. That’s more than 13% lower from last Monday. US equity futures are up more than 1% in APAC today, and US fixed income yields have fallen more than 5bp across the curve, to 1-month lows at 4.42% (down -14bp from last Monday).

Equities traded lower over most of last week but renewed resolution hopes saw equities unwind losses over Thursday, into Friday's close; S&P500 up 0.65%, NASDAQ up 0.7% and NIKKEI up 8.7% over the last 5 days.

Similarly, gold touched lows not seen since Nov 2025 just above $4020/oz before rallying 4.8% over Thursday and Friday, and has opened the week trading back above $4300/oz.

AUD relief… but not a full repair job

While risk assets and the Australian dollar welcome the end of hostilities, this development does not automatically repair other recent sources of AUD damage, namely, the erosion in interest rate support coming from cooling RBA expectations and the re-energised US exceptionalism narrative.

Both sides of that equation are tested directly this week. The RBA meets Tuesday and Kevin Warsh Chairs his first FOMC meeting Wednesday evening. The gap between these two central banks and their messaging probably matters as much for the Australian dollar this week, if not more than the US/Iran news.

This week: central banks take over

A jam-packed week ahead is headlined by RBA, FOMC, BoJ and BoE policy meetings, alongside NZ Q1 GDP, comments from the RBA's Brad Jones, and Eurozone CPI.

After three hikes this year the RBA have afforded themselves “space” to assess the energy price shock. The RBA statement and Governor Bullock’s press conference are expected to note the softening growth pulse, but maintain a hawkish tightening bias due to the inflationary backdrop.

Markets have cooled a lot on their RBA rate hike bets in recent weeks. RBA tightening expectations peaked in late March when markets were pricing in an end-2026 policy rate of 4.85%. That has since eased off to 4.47%, meaning markets are only pricing in a 40% chance of an RBA rate hike this year. A softer April jobs report, a not as hot as feared April CPI, softening conditions in housing markets and weakening surveys have all chipped away at RBA tightening expectations. Q1 GDP was largely carried by data centre investment, a less robust picture than the broad private sector rebound that unfolded in 2025H2.

Kevin Warsh inherits an inflationary backdrop and a stabilising labour market and this week’s FOMC statement and projections will have a hawkish tilt to them. That much is almost a given. But markets have few clues about Chair Warsh’s maiden press conference. He is no fan of forward guidance, wants to reduce the size of Fed’s balance sheet, and has spoken about AI unleashing significant disinflationary potential.

Markets are fully priced for a BoJ hike this week. The BoE meets too. The Australian dollar will also be watching China's May activity data. The April data set was underwhelming.

US, China, Hong Kong and Taiwan markets are closed this Friday for various holidays.

Monday

G7 Leaders Summit commences (15-17th June)

Tuesday

RBA Policy Rate Meeting
China May Activity Data
BoJ Policy Rate Meeting

Wednesday

Australia May Westpac Leading Index
RBA Assist. Gov. Brad Jones speaks
UK May CPI
Eurozone May CPI
US May Retail Sales
FOMC Policy Rate Meeting

Thursday

NZ Q1 GDP
UK Apr Labour Market Data
BoE Policy Rate Meeting
US May Leading Index, Jun Philly Fed Business Outlook

Friday

Japan May CPI
US, China, Hong Kong and Taiwan holidays; markets closed

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