Escalating Middle East conflict lifts safe-haven demand for USD, pressuring the Australian Dollar amid softer Fed rate hike expectations.
The AUD/USD pair fell to 0.6975 in early Asian trading, extending losses below the 0.7000 mark. Rising US-Iran tensions, including airstrikes and a US service member’s death, boosted demand for the safe-haven US Dollar.
Last week’s softer US inflation data reduced Fed rate hike bets, with July’s implied probability dropping to 14% from 25%. Traders now price in 30 basis points of hikes by December, weighing on the USD but not enough to offset geopolitical risks.
The conflict’s escalation, including port blockades and drone strikes, continues to drive market volatility, favoring the Greenback over risk-sensitive currencies like the AUD.