Australian Dollar Holds Losses Amid Middle East Tensions and Risk-Off Mood

AUD/USD Dips as Middle East Tensions Erode Risk Sentiment

The Australian Dollar (AUD) continues to face pressure on Thursday, marking its second straight day of losses against the US Dollar (USD). While softer-than-expected US inflation data supports the case for a Federal Reserve rate cut in September, the AUD struggles as geopolitical risk in the Middle East sparks a risk-off sentiment in global markets.

Global Tensions, Local Pressures

Escalating Israel-Iran tensions have weighed on global risk appetite. The AUD, being a risk-sensitive currency, typically underperforms in uncertain geopolitical climates.

In Australia, Consumer Inflation Expectations for June rose to 5%, up from 4.1% in May—raising concerns about persistent price pressures even as global inflation appears to moderate.

Weak USD, Strong Headwinds

Although the US Dollar Index (DXY) is slipping after softer US CPI data (2.4% YoY in May vs. 2.5% expected), the AUD/USD pair remains pressured due to broader risk aversion.

Additionally, Trump’s announcement that the US-China trade deal is finalized could indirectly benefit the AUD, given Australia’s close trade ties with China. However, any trade-related volatility in China, especially regarding rare earth export limits, could pose a downside risk for Australia.

Outlook Ahead

• Resistance levels: Watch for recovery near 0.6640
• Support zone: AUD/USD could test the 0.6550 level
• Event to watch: US PPI and jobless claims later today

Related Reading on Tredu:

• US Dollar Index Technical Overview
• China’s Rare Earth Strategy & Global Supply Chains
• How Geopolitical Risks Impact Forex Trading