AUD/USD edges higher on Tuesday and trades around 0.7115 at the time of writing, up 0.12% on the day.
The pair remains close to Monday’s peak of 0.7129, its highest level in more than two months, but struggles to extend its advance as the US Dollar (USD) attempts to rebound after touching a two-month low
The Greenback finds some support as rising Oil prices fuel concerns about a potential resurgence in inflationary pressures in the United States (US). More persistent inflation could encourage the Federal Reserve (Fed) to maintain a restrictive monetary policy stance for longer, limiting selling pressure on the US Dollar and, in turn, capping the AUD/USD pair. Geopolitical tensions between the US and Iran also contribute to renewed demand for the US Dollar.
Concerns surrounding the Strait of Hormuz remain in focus, while escalating tensions in the Middle East push Oil prices to a two-week high. A sustained increase in energy costs could reinforce inflation risks and complicate the Fed’s monetary easing path. Investors remain cautious, however, ahead of the release of the Federal Open Market Committee (FOMC) Minutes on Wednesday.