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Australian Dollar loses traction as US launches self-defence strikes on southern Iran

  • AUD/USD loses ground to near 0.7165 in Tuesday’s Asian session. 
  • US military said it carried out new strikes on southern Iran. 
  • Traders brace for Australia’s April CPI inflation report, which is due on Wednesday. 

The AUD/USD pair trades in negative territory around 0.7165 during the Asian trading hours on Tuesday. The Australian Dollar (AUD) declines against the US Dollar (USD) as renewed tensions between the US and Iran weigh on risk-sensitive currencies.  

The US Central Command said on Monday that it launched new strikes on southern Iran, targeting Iranian missile sites and boats attempting to place mines, per BBC. The US military added that the strikes were taken in “self-defense” and were designed “to protect our troops from threats posed by Iranian forces.”

The attacks came as Iranian foreign ministry spokesman Esmail Baqai said some progress has been made in talks with the US, but a deal to end the conflict “is not imminent.” Uncertainty surrounding the US-Iran peace negotiations could boost a safe-haven currency such as the Greenback and drag the pair lower in the near term. 

Australia’s Consumer Price Index (CPI) inflation report will be released on Wednesday. The headline CPI is expected to show a rise of 4.4% YoY in April, compared to 4.6% in March. On a monthly basis, the CPI is projected to show an increase of 0.6% in April, versus 1.1%. Any signs of hotter inflation in Australia could lift the Aussie against the USD. 

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USD/CHF Price Forecast: Strengthens on renewed US-Iran tensions, but technical outlook stays bearish


  • USD/CHF strengthens to around 0.7830 in Tuesday’s early European session. 
  • New US strikes dampen peace deal optimism, supporting the US Dollar. 
  • The pair keeps the negative outlook under the 100-day EMA, with bearish RSI momentum. 
  • The first upside barrier emerges at 0.7840; the initial support level to watch is 0.7808.

The USD/CHF pair edges higher to near 0.7830, snapping the four-day losing streak, during the early European session on Tuesday. Uncertainty surrounding the US-Iran peace negotiations provides some support to the US Dollar (USD) against the Swiss Franc (CHF). 

The US military’s Central Command said US forces have carried out strikes on southern Iran in “self-defence,” the Guardian reported on Monday. It said that the military will defend US forces “while using restraint” during the ongoing ceasefire.

Traders will keep an eye on the US April Personal Consumption Expenditures (PCE) Price Index report, which is due later on Thursday. Any signs of persistent inflation in the US could shift market expectations away from rate cuts and lift the Greenback in the near term. 

Chart Analysis USD/CHF

Technical Analysis:

In the daily chart, USD/CHF maintains a bearish near-term tone as the spot holds beneath the 100-day moving average (MA). Price is also trading just under the 20-day Bollinger middle band, underscoring persistent topside pressure despite a modest recovery from recent lows. The Relative Strength Index (14) at 48 remains slightly below the neutral 50 mark, hinting that downside momentum has eased but not yet shifted in favor of the bulls.

On the topside, initial resistance emerges at the 100-day MA at 0.7840. A daily close above this cluster would be needed to alleviate immediate downside pressure and open the way toward the Bollinger upper band near 0.7905. On the downside, the first notable support is seen at the May 26 low of 0.7808. The next contention level is located at the 20-day Bollinger lower band around 0.7760, where failure would suggest a resumption of the broader decline and expose lower lows on the daily chart.

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Euro softens against British Pound despite ECB hike prospects

  • EUR/GBP declines to near 0.8635 in Monday’s early European session. 
  • ECB rate hike chance rises as Iran conflict fuels inflation. 
  • BoE’s Taylor sees less risk of inflation persistence than in 2022. 

The EUR/GBP cross trades in negative territory around 0.8635 during the early European trading hours on Monday. Traders await the speeches from the European Central Bank (ECB) policymakers later this week, including President Christine Lagarde, for fresh impetus. 

The ECB hinted that rising energy prices might push this year’s inflation forecasts upward, supporting the case for a potential interest rate hike this year. According to Reuters, the case for the ECB to raise the interest rates in June is nearly sealed, but the central bank is likely to be noncommittal about any further move, looking to temper bets for a quick follow-up step in July.

On the UK’s front, softer UK Retail Sales data and an unexpected rise in the Unemployment Rate to 5.0% have prompted traders to scale back expectations for future Bank of England (BoE) rate hikes by December. This, in turn, might weigh on the GBP and acts as a tailwind for the cross. 

BoE Policymaker Alan Taylor said that an “extended hold” is likely sufficient, adding that second-round inflationary impacts are less severe than those seen during the 2022 Russia-Ukraine invasion due to a cooling domestic jobs market. Financial markets are pricing in two quarter-point increases in interest rates by the UK central bank by the end of the year.

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Canadian Dollar gains ground amid hopes of a deal to reopen the ​Strait of Hormuz

  • USD/CAD weakens to near 1.3805 in Monday’s early European session. 
  • The US Secretary of State said, “Either reach a good deal with Iran or handle it differently.” 
  • Cooling domestic inflation and economic weakness in Canada might cap the Canadian Dollar’s upside.  

The USD/CAD pair edges lower to around 1.3805 during the early European session on Monday. The US Dollar (USD) softens against the Canadian Dollar (CAD) after US officials signal progress on a peace deal with Iran. Trading volumes are expected to be light due to a market closure for Memorial Day in the US. 

Reuters reported on Monday that US Secretary of State Marco Rubio said that the US will give diplomacy every chance on Iran but will pursue other means if a good deal cannot be reached while describing the current framework as solid. Rubio stated that a deal to end the war with Iran is still possible on Monday. 

On Sunday, US President Donald Trump said that Washington and Iran had “largely negotiated” a memorandum of understanding on a peace deal that would reopen the Strait of ‌Hormuz. 

Although global oil prices remain elevated, the commodity-linked Loonie failed to capitalize. Concerns over underlying domestic economic growth could offset typical commodity-driven tailwinds.

Traders brace for the US Personal Consumption Expenditures (PCE) Price Index report on Thursday for fresh impetus. In case of hotter-than-projected outcomes, this could underpin the Greenback against the CAD in the near term. 

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AUD/JPY Price Forecast: Gains momentum, holding bullish bias above 100-day EMA

  • AUD/JPY strengthens to near 113.80 in Monday’s early European session. 
  • The cross keeps a constructive bias above the 100-day EMA.  
  • The immediate resistance level emerges at 114.72; the initial support level to watch is 113.65. 

The AUD/JPY cross gains ground to around 113.80 during the early European trading hours on Monday. Hopes of a deal to reopen the Strait of Hormuz buoyed risk appetite, supporting the Australian Dollar (AUD) against the Japanese Yen (JPY). 

The United States (US) and Iran signaled progress in efforts to resolve the conflict, but key details of a framework agreement are still under negotiation, and a US official said it could take a few more days to finalize. However, US President Donald Trump stated that a deal is close, but the US blockade on Iranian ships in the Strait of Hormuz would “remain in full force” until an agreement was signed. 

On the other hand, markets slash the chance of more interest rate hikes from the Reserve Bank of Australia (RBA) after a surprise rise in the jobless rate. This, in turn, might cap the upside for the Aussie. Unemployment Rate in Australia climbed to 4.5% in April, up from 4.3% in March. This figure registered the highest in about four and a half years. 

The odds of a rate hike at the RBA’s next meeting dropped to just 3%, from 13% before the release of the employment report, according to financial market pricing provided by Westpac.

Chart Analysis AUD/JPY

Technical Analysis:

In the daily chart, AUD/JPY maintains a constructive bullish bias as the spot holds above the Bollinger middle band and the 100-day moving average. The Relative Strength Index (14) hovers near 54, suggesting steady but tempered upside momentum rather than a blow-off phase.

On the topside, immediate resistance is aligned with the upper Bollinger band at 114.72, where a clear break would open the door to further gains within the broader uptrend. On the downside, initial support is seen at the day’s open pivot around the Bollinger middle band at 113.65, followed by the lower band near 112.53. Deeper pullbacks would likely lean on the 100-day moving average around 110.80 to preserve the broader bullish structure.

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Indian Rupee Rises to 2-Week High

The Indian rupee strengthened to around 95.4 per dollar, extending its rally for another session to a two-week high as sentiment improved on easing crude oil prices and supportive remarks from the Reserve Bank of India. Support for the rupee increased after Brent crude prices fell below $100 per barrel for the first time in over two weeks amid optimism that the US and Iran are moving closer to a peace agreement. Sentiment was further boosted after Sanjay Malhotra stated that the RBI would do “whatever is required” to ensure orderly forex market movements, adding that the rupee appears undervalued. He also said the central bank has around $700 billion in reserves to curb volatility. However, gains in the rupee were partly limited by persistent inflation concerns after India’s state-owned fuel retailers raised petrol and diesel prices for the fourth time in May to offset losses stemming from higher costs linked to the Iran conflict.

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GBP/USD Price Forecast: Extends recovery to near 20-EMA amid risk-on mood

  • GBP/USD jumps to near 1.3480 as hopes of the US-Iran deal have improved market sentiment.
  • US President Trump said the final agreement with Iran is largely negotiated.
  • Oil prices have declined sharply on US-Iran deal hopes.

The GBP/USD pair is up 0.35% to near 1.3480 during the Asian trading session on Monday. The Cable trades firmly as market sentiment for riskier assets has improved significantly due to increased hopes of a deal between the United States (US) and Iran.

In the Asian trade, S&P 500 futures jump 0.85% to near 7,540, reflecting strong investors’ appetite for risk-sensitive assets. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.3% lower to near 99.00.

Over the weekend, US President Donald Trump said in a post on Truth Social that an agreement with Iran has been “largely negotiated”, which will direct Tehran to reopen the Strait of Hormuz with other key elements, and final details of the deal are currently being discussed. Later, Trump also said in another post on the same platform that negotiations from Washington need not rush for any deal.

Improving hopes of the reopening of the Strait of Hormuz have resulted in a sharp decline in oil prices, which has also forced traders to pare some hawkish Federal Reserve (Fed) bets for the year.

GBP/USD technical analysis

GBP/USD trades higher at around 1.3480 as of writing. The pair extends recovery to near the 20-day exponential moving average (EMA) at 1.3472, which indicates that the near-term tone has slightly become constructive.

The broader downward resistance trend line, with a break point near 1.3612, still caps the medium-term structure overhead, while the Relative Strength Index (14) around 50 hints at neutral momentum after the recent recovery from lower levels.

On the downside, the May 22 low at 1.3413 is the major support zone; a daily close below this level would expose a deeper pullback toward the May 20 low at 1.3375. On the topside, initial resistance is defined by the downward resistance trend line break area around 1.3612, and only a clear move above this barrier would suggest that bulls are gaining enough traction to extend the advance toward 1.3700.

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RBI’s Malhotra: Indian Rupee may be undervalued

Reserve Bank of India (RBI) Governor Sanjay Malhotra said that the Indian Rupee (INR) may now be undervalued following its recent depreciation, Reuters reported on Monday.

Malhotra further stated that the Indian central bank does not target any specific level for the currency, emphasizing that the RBI stands ready to intervene if speculative pressures build up.

RBI Governor said the central bank has enough tools in its kit, including nearly $700 billion in reserves to quell any undue speculative movement. He added that the RBI’s primary mandate is to target inflation. “If the evolving inflation trajectory provides policy space, we support growth,” said Malhotra.

Market reaction 

At the time of writing, the US Dollar Index (DXY) is trading 0.21% lower on the day at 95.45.