The AUD/USD pair attracts heavy selling for the second consecutive day on Friday and breaks through the 0.7200 mark, hitting an over one-week low during the first half of the European session.
Spot prices currently trade around the 0.7160 region, down 0.85% for the day, and remain on track to end the week on a downbeat note amid a broadly firmer US Dollar (USD)
In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, rallies to its highest level since April 7 amid growing acceptance for an interest rate hike by the Federal Reserve (Fed). According to the CME Group’s FedWatch Tool, traders are now pricing in a nearly 40% chance that the US central bank will raise borrowing costs by the end of this year, and the bets were lifted by hotter-than-expected US inflation figures this week. Adding to this, the US Retail Sales data released on Thursday backed the case for a more hawkish US Fed amid inflation fears stemming from the war-driven rise in energy prices.
Meanwhile, US-Iran peace talks remain in limbo amid major disagreements over Tehran’s nuclear program and the Strait of Hormuz. Moreover, US President Donald Trump said on Thursday that he will not be much more patient with Iran and urged Tehran to reach a deal. This keeps geopolitical risks in play, which turns out to be another factor underpinning the safe-haven buck and exerts heavy downward pressure on the AUD/USD pair.