The Australian dollar edged lower against the US dollar on Thursday, extending its losses for the second consecutive day. However, the AUD/USD pair may appreciate if the softer US inflation data further buoys expectations of a Federal Reserve rate cut in September. The risk-sensitive AUD faces headwinds as tensions between Israel and Iran escalate.
The United States advised some Americans to leave the Middle East amid rising uncertainties. Moreover, CBS News reported that US officials have been briefed on Israel’s readiness to launch operations into Iran. The US Dollar Index, which measures the value of the US dollar against six major currencies, extended its losses for the second successive day, trading lower around 98.30 at the time of writing.
The greenback depreciated as softer May inflation data increased the odds of Fed rate cuts. The US Consumer Price Index rose 2.4% year-over-year in May, slightly above the prior figure of 2.3% but below market expectations of a 2.5% increase. The core CPI, which excludes volatile food and energy prices, climbed 2.8% year-over-year in May, below the consensus of 2.9%.
China’s Trade Balance saw a surplus of CNY743.56 billion in May, an increase from the previous CNY689.99 billion. Exports rose by 6.3% year-over-year, down from a 9.3% increase in April. Imports fell by 2.1% in the same period, compared to a 0.8% rise previously.
geopolitical tensions impact AUD/USD
Australia’s Trade Balance posted a 5,413M surplus month-over-month in April, below the expected 6,100M and revised down from the 6,892M previously reported. Exports declined by 2.4% month-over-month in April, against a prior rise of 7.2%.
Meanwhile, imports rose by 1.1%, reversing a 2.4% decline seen in March. The AUD/USD pair is trading around 0.6500. The daily chart’s technical analysis suggests a potential weakening of the bullish bias.
The pair is slightly above the nine-day Exponential Moving Average; breaking below this level could weaken short-term price momentum. The 14-day Relative Strength Index remains above the 50 mark, indicating a bullish bias. The AUD/USD pair may face an immediate barrier at a seven-month high of 0.6538, reached on June 5.
Further advances could see the pair explore the region around the eight-month high at 0.6687, aligned with the upper boundary of the ascending channel at 0.6720. On the downside, initial support is at the nine-day EMA of 0.6492, aligned with the channel’s lower boundary around 0.6490. A break below this crucial support zone could weaken the bullish bias, potentially leading the pair to test the 50-day EMA at 0.6419.
As geopolitical tensions remain a key driver, the Australian dollar’s performance will continue to be influenced by US Federal Reserve policies, economic data releases, and global trade dynamics. Investors should remain cautious amid the volatile market environment.