The AUD/USD currency pair recovered slightly after hitting a fresh two-month low during the Asian session on Thursday, moving back above the 0.7000 psychological mark [1]. This rebound was largely attributed to a softer US Dollar, following milder core US Consumer Price Index (CPI) readings in May, which eased concerns about runaway inflation and kept USD bulls on the defensive [1]. Despite this, the fundamental backdrop remains bearish for the Australian Dollar, with traders advised to wait for strong follow-through buying before confirming a near-term bottom [1].
Market participants are still pricing in a 70% probability that the US Federal Reserve will hike interest rates by the end of the year, driven by ongoing concerns about energy prices amid escalating tensions in the Middle East [1]. The US military launched new strikes on targets across Iran, prompting Iran to close the Strait of Hormuz and threaten a decisive response to any US aggression. These developments have the potential to support crude oil prices and the safe-haven US Dollar [1].
Additionally, fading expectations of further interest rate hikes by the Reserve Bank of Australia (RBA) are likely to limit aggressive bullish bets on the Australian Dollar, suggesting that any upward movement in the AUD/USD pair may be short-lived and could present selling opportunities [1]. Traders are now awaiting the US Producer Price Index (PPI) release for additional market direction later in the day [1].
According to the latest currency heat map, the US Dollar was the strongest against the Australian Dollar today, with a 0.04% gain, indicating continued relative weakness in the AUD compared to the USD [1].
CONCLUSION
The Australian Dollar's rebound above 0.7000 is driven by a softer US Dollar, but the outlook remains bearish due to persistent Fed rate hike expectations and geopolitical risks. Fading RBA rate hike prospects further cap upside potential for the AUD/USD pair. Market participants are closely watching upcoming US PPI data for further cues.