The Australian dollar held above $0.707 on Friday, marking a three-week high and putting it on course for its strongest weekly advance since mid-January. The currency was buoyed by improved global risk sentiment following a two-week ceasefire in the Middle East, which also pressured the US dollar.
Attention is now turning to upcoming diplomatic efforts, with US Vice President JD Vance scheduled to lead talks in Islamabad this weekend. Nonetheless, uncertainty persists. Israeli strikes on Lebanon have continued despite indications of possible direct negotiations, while disruptions in the Strait of Hormuz have heightened concerns over global energy supplies. President Trump has also warned of potential escalation if the ceasefire terms are not respected, including over Iran’s reported efforts to levy charges on ships transiting the Strait.
In Australia, the Reserve Bank has already raised interest rates twice this year, bringing the cash rate to 4.10%, as inflation remains above its target band. Markets are currently pricing in about a 60% probability of another rate increase in May and expect the policy rate to approach 4.65% by year-end.
