Aussie Dollar Rallies on Iron Ore Surge and Hopes of US-China Trade Truce

Highlights:

• Australian dollar reaches US66.25¢ at the time of writing, an eight-month high.
• Iron ore prices jump 12% to over US$105/tonne.
• CBA (ASX: CBA) analysts see potential for further gains if US-China trade talks progress.

Trade Diplomacy and Iron Ore Drive Momentum

The Australian dollar is defying expectations by strengthening against the US dollar, bolstered by a rebound in iron ore prices and renewed optimism for a US-China trade truce. According to strategists at Commonwealth Bank of Australia (ASX: CBA), upcoming talks between Chinese officials and US Treasury Secretary Scott Bessent in Stockholm could be a key trigger for further gains in the local currency.

At the time of writing, the Australian dollar has reached US66.25¢ — its highest level in eight months — surprising many traders who had anticipated a decline.

Iron Ore Prices Provide Unexpected Support

Australia’s top export, iron ore, has rallied strongly in recent weeks. Prices have surged 12% over the past month, hitting a five-month high of over US$105 per tonne. This unexpected strength has helped underpin the Australian dollar, especially amid forecasts that Chinese steel production cuts would weigh on the commodity. Efforts by Chinese authorities to stimulate their economy — including infrastructure projects like the construction of a mega dam in Tibet — have also contributed to stabilising demand for Australian exports.

Risks Remain Ahead of Tariff Deadline

Despite the current rally, the Australian dollar still faces potential headwinds. A looming August 1 deadline for new US trade tariffs could introduce volatility if negotiations break down. However, if the trade truce is extended, analysts believe there could be further upside for the Aussie dollar.

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