The AUD/USD pair demonstrated some strength beneath the 0.7100 level, bouncing back slightly after dipping to a one-week low earlier this Thursday. During early European trading, the spot prices hovered around 0.7120, marking a decline for the second consecutive day.
Recent data released on Wednesday indicated that the composite Australian Consumer Price Index (CPI) decreased to 4.2% year-on-year in April, down from 4.6% in March. This comes alongside an unexpected rise in the unemployment rate and a decrease in the employment figures in Australia. Traders are seemingly considering the possibility of the Reserve Bank of Australia (RBA) increasing interest rates in their June policy meeting, which has contributed to the downward trend of the Australian dollar (AUD) and continues to exert pressure on the AUD/USD pair, coupled with a stronger US dollar (USD).
Meanwhile, developments aimed at easing the Middle East tensions have sparked hopes for a diplomatic resolution to the ongoing Iran conflict, potentially strengthening the US dollar’s status as a reserve currency. Recent military actions by the U.S. targeted Iranian facilities perceived as threats to U.S. forces and commercial activities in the Strait of Hormuz. In response, the Islamic Revolutionary Guards Corps (IRGC) announced an attack on a U.S. air base, cautioning that further U.S. actions might elicit a “more decisive” response and raise tensions further.
On another note, US President Donald Trump expressed dissatisfaction with the negotiated terms with Iran, indicating no rush towards finalizing a deal. This stance sustains the geopolitical risk factor and supports the strength of the greenback. Additionally, there are expectations that the US Federal Reserve (Fed) might hike interest rates by year-end, lending further support to the US dollar and adding to the pressure on the AUD/USD pair. However, USD bulls seem to be taking a cautious approach, likely waiting for the release of the US Personal Consumption Expenditures (PCE) Price Index report.
This core metric is viewed as the Fed’s preferred inflation gauge and is anticipated to significantly influence market expectations about future Fed policies. Thursday’s US economic releases also include preliminary Q1 GDP figures, which could potentially heighten demand for the US dollar and provide new momentum for the AUD/USD pair. Meanwhile, the focus remains on the ongoing Middle East conflict. Despite all these factors, the overall environment appears to favor bearish traders, suggesting further declines in the currency pair.
