As Israeli-Iran Tensions Escalate, Australian Dollar Declines

The Australian dollar (AUD) experienced a drop against the US dollar (USD) on Thursday, marking its second consecutive day of losses. This decline is partly attributed to shifting risk sentiments influenced by geopolitical tensions in the Middle East. However, there seems to be some potential for the AUD/USD pair to rebound as softer US inflation data raises expectations for a rate reduction by the Federal Reserve this September.

In more recent developments, US President Donald Trump discussed his trade deal with China on social media, highlighting that the agreement is still pending final approval from both him and Chinese President Xi Jinping. He stated, “We’re getting a total of 55% tariffs. China has earned 10%. The relationship is great! Thank you for paying attention to this issue.” Given that Australia and China have a close trading relationship, any economic shifts in China could impact the AUD significantly.

Moreover, the US has advised several American citizens to leave the Middle East, possibly signaling that risk-sensitive currencies like the AUD could encounter turmoil as tensions rise between Israel and Iran. Trump emphasized on Wednesday that the US would not tolerate Iran acquiring nuclear weapons, with reports suggesting that US officials may be preparing for more extensive operations in Iran.

Australian Dollar Sees Hits Despite Fluctuating US Dollar Amid Weak Inflation Figures

• The US Dollar Index (DXY) has posted consecutive losses, trading at around 98.30. The greenback’s depreciation can be linked to lower-than-expected inflation data from the US, increasing speculation regarding a potential rate cut by the Fed.
• In May, the US Consumer Price Index (CPI) rose by 2.4%, just surpassing the previous figure of 2.3%. However, it fell short of market expectations of 2.5%. The core CPI, which excludes volatile food and energy prices, increased to 2.8% on a year-over-year basis, compared with a consensus of 2.9%.
• On Wednesday, Trump mentioned his desire to extend the deadline for trade negotiations, but he wasn’t convinced it was necessary. He also indicated he would establish a unilateral tariff rate in two weeks.
• The U.S. Federal Circuit Court of Appeals recently extended a temporary pause, as it sought to challenge a previous court ruling that impeded tariffs. The court has upheld the effectiveness of Trump’s broad tariffs.
• China’s trade balance in May reached CNY 74.356 billion, showing growth from a previous surplus. Although exports increased by 6.3% year-over-year, it was down from April’s 9.3% rise. Meanwhile, imports dropped from a previously recorded increase of 0.8% to a year-over-year decline of 2.1%.
• In Australia, the trade balance surplus was recorded at 5,413 million in April. Exports fell by 2.4% in April, down from a previous rise of 7.2%. Imports rose by 1.1% compared to a 2.4% decline recorded in March.

Australian Dollar Tests Key Support Level at 0.6500

The AUD/USD pair is currently hovering around 0.6500. Daily chart analysis suggests a possible weakening of bullish momentum as the pair attempts to dip below the ascending channel’s lower boundary. Currently, it is slightly above the nine-day exponential moving average (EMA). A drop below this could weaken short-term price dynamics. However, the 14-day relative strength index (RSI) is still above the 50 mark, signaling a bullish tendency.

The AUD/USD pair could eye an immediate resistance level at 0.6538, the highest for seven months reached on June 5. A further upward movement might encourage exploration of the eight-month high of 0.6687, with the upper channel limit around 0.6720.

On the downside, initial support is visible at the nine-day EMA of 0.6492, aligning with the rising channel’s lower boundary at 0.6490. If the pair breaks below this crucial support area, it could weaken the bullish outlook and lead to a test of the 50-day EMA at 0.6419.

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