The Australian dollar recovers from a two-month low as softer US core inflation data reduces USD strength, though Fed rate hike bets limit gains.
The AUD/USD pair climbed back above the 0.7000 mark on Thursday after hitting a two-month low earlier in the session. The recovery follows a pullback in the US dollar, driven by milder-than-expected core US Consumer Price Index (CPI) data for May, which eased inflation concerns despite a rise in the headline figure.
Traders remain cautious, however, as markets still price in a 70% chance of a Federal Reserve rate hike by year-end. Geopolitical tensions in the Middle East, including US strikes on Iran and Iran’s threat to close the Strait of Hormuz, could support crude oil prices and the safe-haven USD, capping the Aussie’s upside.
Additionally, fading expectations of further Reserve Bank of Australia (RBA) rate hikes may discourage aggressive bullish bets on the AUD. The pair’s near-term outlook remains uncertain as traders await stronger follow-through buying.