FOMC Minutes Shift Hawkish, AUD/USD Bounces Back from Range Low

Iran, FOMC Minutes Key Points

• Positive Iran headlines continue to boost risk appetite, but traders will want to see concrete action before committing too strongly.
• The April FOMC minutes show that the Fed is considering dropping its easing bias, a potential precursor to raising interest rates later this year.
• AUD/USD is bouncing back to the middle of its 5-month range as traders wait for a catalyst for a breakout

After a quiet start to the day, market volatility has picked up in the afternoon, driven by (you guessed it) hopes of potential peace deal in Iran and the minutes from the most recent FOMC meeting.

On the Iran front, President Trump proclaimed that the US was in “final stages” of peace talks with Iran, and Iran’s Foreign Minister said that the country was pursuing the path of negotiations with seriousness in good faith and the “focus is on ending the war.” Realistically, we’ve seen this type of headline countless times before with no real progress, but markets continue to react positively to the headlines, with oil prices falling by -6% back toward $100 as we go to press.

Meanwhile, the April FOMC minutes showed a generally hawkish lean. Officials held rates steady, but the minutes show that the debate has moved away from timing the next cut and toward whether policy is restrictive enough. “Many” participants backed dropping the statement’s easing bias, and “a majority” saw further rate increases as possible if inflation stays too high.

According to Bloomberg’s sentiment score, the minutes were the most hawkish they’ve been since July 2023:

Source: Bloomberg

For FOMC members, the main worry was that tariffs, energy prices and other cost pressures could keep inflation above target, while the labor market remains firm enough to give the Fed room to wait. That mix leaves the Committee sounding less confident that disinflation is on track. For markets, the key takeaway is that near-term cut hopes look harder to justify, and the June meeting may bring a more explicitly two-sided message: hold for longer, or even tighten again, if the inflation data fail to improve.

The minutes should support yields and the dollar at the margin, but the market remains more attuned to developments in Iran for now. Traders should also note that Nvidia (NVDA), the largest company on the planet by market capitalization, reports earnings after the market close and could impact broader risk appetite, even for those who are not trading stocks directly.

Australian Dollar Technical Analysis: AUD/USD 4-Hour Chart

Source: Tradingview, StoneX

Looking at the 4-hour chart of the AUD/USD, rates are bouncing back strongly today, benefitting from the general recovery in risk appetite. The pair has completed a 38.2% retracement of the April-May rally near 0.7100 and is now recovering to the middle of its 5-week range between 0.7100 and 0.7270.

From a technical perspective, a neutral bias is appropriate as long as AUD/USD remains within that well-trodden range. A resumption of hostilities in Iran could weigh on the pair and lead to a deeper retracement toward 0.7050 or 0.7000 if 0.7100 support breaks, whereas a mutually-agreed path to peace (and more importantly, the reopening of the Strait of Hormuz) would likely drive AUD/USD back toward resistance at the 3-year high near 0.7270.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX