Key Moments
- AUD/USD climbed back above the 0.7000 level after touching a new two-month low during the Asian session on Thursday.
- Softer core US inflation data weighed on the USD, even as markets continued to price in a roughly 70% probability of a Fed rate hike by year-end.
- Easing expectations for further Reserve Bank of Australia tightening are seen as restraining sustained gains in the Australian Dollar.
AUD/USD Rebounds, But Bias Remains Cautious
The AUD/USD pair attracted buying interest in Asian trading on Thursday, recovering modestly after setting a fresh two-month low and reclaiming the psychologically important 0.7000 handle. Despite this bounce, the broader setup is still viewed as favoring sellers, and market participants are wary of declaring a durable short-term bottom without more convincing follow-through demand.
Softer Core US CPI Undercuts USD, Even as Fed Hike Bets Persist
A key driver behind the Australian Dollar’s recovery has been a softer tone in the US Dollar, following the latest US Consumer Price Index release for May. While the headline CPI reading increased, more subdued core inflation metrics helped temper fears of runaway price pressures and left USD bulls on the defensive. This dynamic has provided a supportive backdrop for AUD/USD in the near term.
At the same time, rate expectations for the US remain tilted toward additional tightening. Traders are still assigning about a 70% probability that the Federal Reserve will raise interest rates by the end of this year. Concerns over energy prices, linked to the conflict in the Middle East, are contributing to these expectations and helping to limit the extent of USD weakness.
Geopolitical Escalation Supports Safe-Haven Flows and Oil
Geopolitical tensions in the Middle East have intensified. The article notes that the US military launched “a new wave of strikes on targets across Iran after President Donald Trump said that more were coming.” In turn, “Iran announced the closure of the Strait of Hormuz and warned that its armed forces would give a crushing and decisive response to any aggression from the US in the region.” According to the report, these developments threaten to derail efforts to resolve a conflict that has lasted more than three months.
Such tensions are seen as supportive for Crude Oil prices and tend to bolster demand for the safe-haven US Dollar. This interplay between higher energy prices, risk sentiment, and Fed policy expectations is an important constraint on how far AUD/USD can rally, even when the USD is under pressure from softer inflation data.
RBA Expectations Limit Australian Dollar Upside
On the domestic front, the Australian Dollar is also facing a headwind from shifting expectations around the Reserve Bank of Australia’s policy path. The article highlights that diminishing odds of additional RBA rate hikes are likely to discourage aggressive bullish positioning in AUD and act as a cap on AUD/USD gains.
Given these cross-currents, any further recovery in AUD/USD is still viewed as vulnerable. The report suggests that subsequent rallies may be treated as opportunities to sell into strength, with a heightened risk that such moves could fade quickly without new, supportive catalysts.
Data Focus: US PPI in View
Market participants are now turning their attention to the US Producer Price Index release later in the day for additional direction. Fresh signals on producer-level inflation could influence expectations for the Fed’s policy trajectory and, by extension, the near-term path of the US Dollar and AUD/USD.
US Dollar Performance Against Major Currencies
The following table presents the reported percentage changes of the US Dollar against a set of major currencies for the day. According to the article, the US Dollar showed its strongest relative performance versus the Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.12% | -0.09% | -0.05% | -0.05% | 0.04% | -0.08% | -0.18% | |
| EUR | 0.12% | 0.03% | 0.07% | 0.08% | 0.06% | 0.07% | -0.06% | |
| GBP | 0.09% | -0.03% | 0.06% | 0.04% | 0.04% | 0.04% | -0.09% | |
| JPY | 0.05% | -0.07% | -0.06% | -0.02% | -0.03% | -0.03% | -0.14% | |
| CAD | 0.05% | -0.08% | -0.04% | 0.02% | -0.01% | 0.00% | -0.14% | |
| AUD | -0.04% | -0.06% | -0.04% | 0.03% | 0.01% | 0.01% | -0.14% | |
| NZD | 0.08% | -0.07% | -0.04% | 0.03% | -0.00% | -0.01% | -0.13% | |
| CHF | 0.18% | 0.06% | 0.09% | 0.14% | 0.14% | 0.14% | 0.13% |
As noted, the heat map reflects percentage movements between the listed currencies. The currency on the left side of the table serves as the base, while the one at the top is the quote. For example, selecting the US Dollar from the left column and moving across to the Japanese Yen cell yields the percentage change for USD (base)/JPY (quote).
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