This morning the Asian session started with a leftward move for the risk-sensitive Australian currency. The market was once again shrouded in fear and uncertainty after the Middle East geopolitics flared up again.
The Aussie Dollar lost its grip and slid rapidly below the psychological level of 0.7100, struggling around 0.7095. This sudden selling momentum is clear evidence that investors' risk appetite is dying, while the US Greenback Dollar once again showed its fangs as the main protector when panic strikes.
Iran Strike Threat: Trump Triggers Panic Selling
US President Donald Trump has just sent shockwaves into the market with a stern warning that a new attack on Iran will take place in the next few days if no deal is reached.
This threat is very important to the market because it eliminates the ceasefire speculation and rejects the price of crude oil remaining high, which this situation will directly fuel the flames of global inflation.
The Iranians responded by stating that they are ready to fight all out. This ongoing conflict has traders expecting the Dollar to remain the main target, putting ongoing headwind on the AUD/USD currency pair.
Intraday Label
RBA Minutes Reveal Inflation Fears, But Aussie Bags Still Leak
On the Australian side, the Reserve Bank of Australia (RBA) meeting minutes revealed that eight of the nine board members actually wanted the interest rate to be raised to 4.35% due to inflation risks from the Gulf conflict.
Despite the central bank's rather hawkish tone, this data failed to save the Aussie as market concerns over the adverse effects of the war were far greater than the fundamental factors of domestic interest rates.
RBA members themselves admitted that inflation had long been above target before the conflict erupted and monetary policy was unable to prevent rising oil prices from seeping into the economy. As a result, the market began to see the RBA's next move as locked in, prompting traders to continue to dump their bullish positions on AUD/USD.
China Takes Safe Step, PBOC ‘Wait and See’
Meanwhile, the People’s Bank of China (PBOC) chose to keep its key interest rates (LPR) unchanged, at 3.00% and 3.50% respectively.
China’s move is important to the Australian market because the Aussie economy is highly dependent on the economic health of Beijing as its main trading partner.
When the PBOC appears passive and does not introduce new stimulus, the market assumes that the Chinese economy is also cautious in the face of global inflationary pressures.
This further reduces the attractiveness of the AUD currency, and traders begin to expect no external support that can help the Aussie rise in the near future.
MARKET TECHNICAL STRUCTURE
From a technical perspective, the fall below the psychological level of 0.7100 has changed the market dynamics for the short term.
Current Bias: Bearish (Selling pressure is dominant).
Key Resistance (0.71187): The 0.71187 area, which was previously a strong support floor price, has now changed its character to a rigid resistance ceiling (Support Become Resistance). As long as AUD/USD fails to close the day above this level, the market will see every small increase as the best opportunity to sell on the rally.
Reaction Area / Support (0.7050): The 0.7050 level is the next target zone. If the Dollar's pressure continues and this level is broken, it will open the way for deeper downward momentum towards new lows.
MARKET EXPECTATIONS
👉 Scenario A: If Australian Jobs Data (Thursday, May 21) Weak / War Breaks Out (AUD/USD Junam) If the conflict in the Middle East really explodes in the next few days or if Australian labor data tomorrow is out of order, panic will peak. The Dollar will skyrocket, AUD/USD will easily collapse past 0.7050.
👉 Scenario B: If Trump Backs Off Threats (AUD/USD ‘Short Squeeze’) If Iran gives a positive response and Trump cancels the military threat, the market will return to relief. The Dollar will experience a technical decline, which will trigger a sharp rally for AUD/USD to re-enter the 0.7120 level.
IMPORTANT EVENTS UPCOMING
Australian Employment Report (Thursday): This is the Grand Finale for the Aussie market this week. Traders are eagerly awaiting this data as a strong labour market is the only reason left to force the RBA to act more aggressively to defend their currency.
Speaking as a trader, never try to “buy” the Aussie just because it looks cheap below 0.7100. In a market driven by Trump’s war threats, the strength of the Dollar is absolute.
