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It's double trouble for the AUD today, with both domestic and international drivers working against it.
The Iran-Israel conflict looks set to expand with clear indications the U.S. will assist Israel in dismantling Iran's nuclear ambitions, which could send oil prices surging and slow global growth prospects.
News outlets are reporting that President Trump has approved a plan to attack Iran, pending the final order.
Sources said Trump was waiting to see if Iran would concede to a last-minute deal to end its nuclear programme before moving forward with attack plans.
For its part, Iran says it would never surrender.
For the Australian Dollar, this makes for a traditionally hostile financial market backdrop. "AUD/USD fell amid weaker risk sentiment and is currently trading near 0.6490," says Samara Hammoud, FX analyst at Commonwealth Bank. The Pound to Australian Dollar exchange rate trades half a per cent higher on the day at 2.0722.
However, there was little help on the domestic front to limit external headwinds, with news that Australian employment fell from +87.6K in April to -2.5K in May, below consensus expectations for a 25K increase.
Because the participation rate fell to 67%, the unemployment rate remained steady at 4.1%.
The undershoot in employment versus expectations is judged by the markets as being a potential signpost to a quickening in the pace the Reserve Bank of Australia (RBA) cuts interest rates going forward.
Above: The RBA could choose to look through the monthly employment data which can tend to be volatile. Image courtesy of ANZ.
Central banks are highly attuned to employment, as this is important to wage growth which in turn impacts inflation. The long and short of it is that a weakening labour market could point to a softer inflation trajectory, allowing the central bank to cut interest rates.
"Our view remains that we expect the RBA to leave the cash rate at 3.85% in July, although a rate cut at that meeting would certainly not surprise," says Aaron Luk, Economist at ANZ.
The Australian Dollar would find a new domestic headwind in the form of a market recalibration in the coming weeks in favour of a July cut.
This is why these data and the implications for the RBA's policy are weighing on the Aussie Dollar.
Commonwealth Bank of Australia, however, does not see enough in the figures to suggest the RBA will be swayed and looks for the next interest rate cut in August.
If this is the correct view, then settled interest rate expectations can underpin the Australian Dollar somewhat, particularly if geopolitical tensions subside.
And right now, it is geopolitics that is in the driving seat for AUD exchange rates.
Above: The price of Brent crude oil surges.
The Aussie is highly sensitive to sentiment, and the prospect of U.S. involvement in the Iran-Israel conflict makes for nervous market conditions.
For markets, the key issue here is oil and how Iran will respond to an escalation in the Strait of Hormuz. This is the chokepoint between the Saudi peninsula and Iran, where Iran could flex some muscle by halting shipping.
Given that significant amounts of oil flow from the Middle East to global markets through this passage, markets are wary, and oil prices are elevated.
Stocks are in the red, dragging down assets that are correlated, chief amongst them, AUD.