Australian Dollar hangs near weekly low vs USD on reduced RBA hike bets, Mideast tensions

The AUD/USD pair remains depressed for the third straight day and trades around the 0.7130 region during the Asian session, just above the weekly low touched the previous day. Moreover, the fundamental backdrop favors bearish traders and suggests that the path of least resistance for spot prices is to the downside.

The Australian Dollar (AUD) is weighed down by reduced bets for further interest rate hikes by the Reserve Bank of Australia (RBA), which, along with a broadly firmer US Dollar (USD), continues to exert pressure on the AUD/USD pair. Data released on Wednesday showed that the headline Australian Consumer Price Index (CPI) slowed from the 4.6% YoY rate in March to 4.2% in April. This comes on top of an unexpected rise in the Australian Unemployment Rate and a fall in the number of employed people, prompting traders to nearly price out the possibility of a rate hike at the June RBA policy meeting and exerting pressure on the Aussie.

On the geopolitical front, US forces carried out ‌new strikes in Iran targeting a military site that posed a threat to US forces and commercial traffic in the Strait of Hormuz. The US military also intercepted and shot down multiple Iranian drones that posed a similar threat. Adding to this, US President Donald Trump said that he is not satisfied with the terms of the deal negotiated with Iran and that he won’t be rushed into a deal. The latest developments keep geopolitical risk premium in play, which benefits the Greenback's relative safe-haven status and further contributes to the offered tone surrounding the AUD/USD pair.

Meanwhile, the US-Iran standoff triggers a modest recovery in Crude Oil prices, reviving inflationary concerns and bolstering bets that the US Federal Reserve (Fed) will raise borrowing costs by year's end. According to the CME Group's FedWatch Tool, traders are pricing in nearly a 50% chance of a rate increase in December and assigning a 60% probability of a hike in January. This turns out to be another factor that lifts the USD Index (DXY), which tracks the Greenback against a basket of currencies, to a fresh weekly high and backs the case for the resumption of the AUD/USD pair's recent retracement slide from a nearly four-year high.

Traders, however, might refrain from placing aggressive directional bets and opt to wait for the release of important US macro data, due later during the North American session. Thursday's US economic docket features the release of the Prelim GDP report and the Personal Consumption Expenditures (PCE) Price Index. The latter is considered as the Fed's preferred inflation gauge and will play a key role in influencing market expectations about the interest rate path. Apart from this, developments surrounding the Middle East crisis might continue to infuse volatility and produce short-term trading opportunities around the AUD/USD pair.