Recently, I’ve noticed that the Australian dollar–US dollar and the euro have rebounded quite strongly over the past couple of days. The AUD/USD has surged to 0.7148, reaching a recent high, while EUR/USD has been trading in a range around 1.18; it even touched 1.1811 yesterday. It looks like the restart of US-Iran negotiations has given the market confidence, and risk sentiment has clearly warmed up.

After crude oil prices fell sharply, demand for safe-haven assets has tailed off accordingly, and the US dollar’s appeal is weakening. Analysts at Westpac Bank say that if the Middle East situation truly eases, AUD/USD could rise to 0.75 in the second half of the year. Australian inflation is still proving rather stubborn, and the market expects the central bank to hike rates again in May—this is also positive for the Australian dollar. As for the euro, views among different institutions are not consistent: some believe it can climb to 1.20, while others think the near-term upside may be limited and that substantive progress in US-Iran negotiations is needed.

That said, I think the market may be a bit too optimistic right now. Has the Federal Reserve’s safe-haven appeal really completely disappeared? The risk of volatility in energy prices may be underestimated. If another round of shocks comes, the impact on the global economy will still be quite significant. So, the upside room for AUD/USD to keep rising may not be as large as people imagine—it still depends on the progress of the negotiations to come.