The Australian Dollar (AUD) strengthened against the US Dollar (USD) on Monday, buoyed by improved risk sentiment amid easing geopolitical tensions.

Reports from The Wall Street Journal indicate that Iran is signaling openness to negotiations with the United States (US), prompting optimism about a potential de-escalation in the recent Israel-Iran tensions.

Diplomatic efforts are gaining momentum as international stakeholders, including the United States, Saudi Arabia, and the United Nations, continue to urge restraint and dialogue to prevent further escalation.

Additionally, economic data from China released early in the Asian trading session provided mixed signals but overall helped stabilize market sentiment.

While China's Industrial Production and Fixed Asset Investment figures for May fell short of expectations, posting annual declines, robust Retail Sales data mitigated concerns about broader economic weakness.

Given that China is Australia's largest trading partner, shifts in Chinese economic activity have a direct impact on Australian economic prospects.

Further supporting the AUD/USD pair was notable weakness in the US Dollar following a disappointing Empire State Manufacturing Index report.

The June reading came in at -16.0, markedly below market expectations of -5.5, and representing its weakest performance since March.

The significant miss underscores mounting concerns about contraction within the US manufacturing sector and adds uncertainty to the outlook for US economic momentum, placing downward pressure on the USD.

Source: Fxstreet