Geopolitical tensions and rising expectations of a Federal Reserve rate hike weigh on the risk-sensitive Australian Dollar.
The Australian Dollar (AUD) extended its decline for a third straight session, trading near two-month lows against the US Dollar (USD) on Thursday. Escalating Middle East tensions and growing speculation of a Federal Reserve rate hike this year bolstered demand for the Greenback, pressuring the risk-sensitive AUD.
US inflation data released Friday showed the highest annual increase in over three years, reinforcing expectations of tighter monetary policy. Strong labor market figures further fueled bets of a Fed rate hike, providing additional support to the USD. Meanwhile, Australia’s economic calendar remained light, with weak consumer confidence data offsetting positive trade figures from China.
Investors remained cautious as US-Iran tensions persisted, with conflicting reports on potential de-escalation. The Reserve Bank of Australia (RBA) is expected to hold rates steady next week, though its guidance may influence market sentiment.