Above: AUD on June 17.
Fears over renewed escalation are growing.
The Australian dollar is the day's biggest G10 laggard, falling against all its major peers.
Analysts at Commonwealth Bank of Australia say the underperformance comes amidst concerning headlines that show the likelihood of renewed escalation in the Middle East.
"AUD/USD will continue to take its cue from headlines about the Middle East conflict. Good news headlines will push AUD/USD up while bad headlines will pull AUD/USD down," says Samara Hammoud, a strategist at CBA.
Growing concerns come after U.S. President Donald Trump left the G7 summit early, amidst hints that the move was related to the Iran-Israel conflict. Of note for AUD watchers, Trump's departure came before the planned meeting with Australian Prime Minister Anthony Albanese.
"As such, Albanese will forego the opportunity to discuss a potential trade deal and pursue assurances on AUKUS," adds Hammoud.
Emmanuel Macron, the president of France, said Trump left early to work on a ceasefire between Israel and Iran.
However, Trump denied the claims, saying the reason was "much bigger". He apparently instructed the National Security Council (NSC) to be ready in the Situation Room upon his return.
There has been speculation that Trump has intelligence that Iran is about to strike a U.S. base in Iraq, raising fears America could be dragged into the war. This would represent a major escalation that would prompt notable market moves.
Trump also warned on social media, "Everyone should immediately evacuate Tehran!” and played down the potential for a ceasefire.
Despite the headlines, the U.S. Dollar has not benefited, even as oil prices move higher again. However, it is notable that other risk-sensitive currencies are moving: the safe-haven franc tops the leaderboard and the Australian Dollar is at the bottom.
"Risk-sensitive peers such as NZD, AUD and ZAR made a stronger start to the week. These trends have already been flipped on their head though amidst Trump’s social media post on Tehran," says George Vessey, Lead FX Strategist at Convera.
The Aussie has a high sensitivity to global sentiment, and stocks, tending to rise when the mood is good but fall when fear rises.
We are in a new fear stage and the prospect of a potential escalation will keep sentiment subdued in the near term, which can weigh on the Aussie.
However, previous episodes of Middle East-linked market moves have proven relatively short-lived, confirming the markets tend to see them as temporary flashes. When fears lift, the Australian Dollar can lead the rebound.
But it's not just Iran that is the source of market uncertainties. There's a Federal Reserve interest rate decision due Tuesday, plus the approaching deadline of the 90-day tariff pauses (July 8). The Senate progress of Trump’s beautiful bill is also to be watched with the Senate version expected as soon as Monday. The July 4 deadline for the signing of the Bill by Trump remains.
A German cabinet meeting to reveal initial infrastructure spending plans is due June 24.
These "are all loose ends with (significant) market moving potential," says a market note from KBC Markets.