The AUD/USD pair has faced significant selling pressure for a second consecutive day, breaking above the 0.7200 mark and reaching its lowest point in almost a week during early European trading. Currently, the spot price is around 0.7160, reflecting a drop of 0.85% for the day, and it appears set to close the week on a downward trend, largely due to the overall strength of the US dollar.
The U.S. Dollar Index (DXY), which measures the dollar against a collection of other currencies, has surged to heights not seen since April 7. This is largely attributed to increased expectations for interest rate hikes by the Federal Reserve. Traders are estimating nearly a 40% likelihood that the U.S. central bank will elevate borrowing costs by the end of this year, spurred on by better-than-anticipated inflation figures from the U.S. this week.
Moreover, retail sales data released on Thursday has reinforced a more aggressive perspective from the US Federal Reserve, particularly in light of inflationary concerns driven by soaring energy prices linked to the war. Meanwhile, peace negotiations between the United States and Iran are at a standstill, mired by significant disagreements over Iran’s nuclear ambitions and issues concerning the Strait of Hormuz. Additionally, US President Donald Trump indicated on Thursday that he would no longer demonstrate patience with Iran, urging the country to reach an agreement.
This situation has kept geopolitical risks at the forefront, acting as yet another factor that supports safe-haven assets and applies notable downward pressure on the AUD/USD pair. In contrast, optimistic reports from a meeting between President Trump and Chinese President Xi Jinping are stirring hopes for enhanced relations between these two major economies. However, this development likely won’t benefit Australia, often seen as a proxy for China, nor will it inspire bullish sentiments among traders.
The broader context and the recent breakdown through the week’s trading range bolster the case for an extended decline in the AUD/USD pair from its highs seen since May 2022, as noted previously. Nevertheless, the hawkish position of the Reserve Bank of Australia (RBA) may offer some degree of support to the spot prices, potentially mitigating losses.
