Australian Dollar Rises on Weaker USD and Middle East Ceasefire Optimism

Australian Dollar Rises on Weaker USD and Middle East Ceasefire Optimism

The Australian Dollar (AUD) gained momentum for the third consecutive session on Wednesday, as easing geopolitical tensions in the Middle East and a weaker US Dollar (USD) improved risk sentiment. The AUD/USD pair currently trades higher following the release of Australia’s May CPI data.

Australia’s CPI Eases in May, RBA Rate Cut Expectations Rise

The Monthly Consumer Price Index (CPI) in Australia rose 2.1% YoY in May, down from 2.4% in April and below market expectations of a 2.3% increase. This marked the first deceleration after three months of steady inflation.

Weaker CPI data, alongside sluggish GDP growth, has increased the probability of a 25 basis point (bps) rate cut by the Reserve Bank of Australia (RBA) in July, with market pricing reflecting an 80% likelihood. Forecasts now suggest a total of 73 bps in cuts by the end of 2025.

Middle East Ceasefire Boosts Risk Appetite

In a significant geopolitical shift, US President Donald Trump announced a ceasefire between Israel and Iran, easing concerns over prolonged conflict and supply chain risks. Although uncertainties remain, markets responded positively to the development, shifting towards risk-on assets like the Australian Dollar.

Fed Policy Outlook and USD Weakness

Adding to AUD’s strength is continued weakness in the US Dollar, as Fed Chair Jerome Powell reiterated a cautious approach to interest rate cuts. Powell emphasized that rate cuts are unlikely before Q4, despite market expectations for some relief in the current cycle.

Key Takeaways:

• AUD/USD gains on easing tensions and risk-on sentiment.
• Australia’s CPI at 2.1% YoY, below forecast, supports July RBA rate cut speculation.
• Ceasefire between Israel and Iran lifts market confidence.
• US Dollar weakens as Fed maintains wait-and-see stance.

Related Content on Tredu.com:

• Australia’s May CPI Softens, RBA in Focus
• US Dollar Weakens as Fed Signals Delay in Rate Cuts
• Ceasefire Boosts Risk Assets: What It Means for Forex Traders