AUD/USD declines as the Australian Dollar stays muted in response to softer inflation figures, which dampen domestic interest rate outlooks. Australia’s June CPI increased by 3.8% on a year-over-year basis, reflecting a deceleration from May and falling short of the 4.0% market expectation. Middle East hostilities bolster the US Dollar, posing a risk of additional declines for the AUD/USD pair. AUD/USD has experienced a decline for the second consecutive day, currently trading near 0.6970 during the Asian trading session on Wednesday. The pair declines as the Australian Dollar persists in its difficulties following the publication of domestic Consumer Price Index data.
The Australian Bureau of Statistics reported on Wednesday that Australia’s Consumer Price Index increased by 3.8% year-over-year in June, compared to a 4% growth reported in May. The market forecast indicated a 4% print for the reported period. The monthly CPI experienced a decline of 0.1% in June, contrasting with the prior reading of a 0.7% decrease, and surpassing the anticipated 0.2% increase. On an annual basis, the RBA weighted median CPI increased by 3.6% year-over-year during the same period. The AUD/USD pair may further lose ground as the US Dollar may find support amid renewed hostilities in the Middle East, which have reignited geopolitical tensions, keeping investor focus firmly on inflationary risks and the broader interest rate outlook in the United States.
Risk aversion escalates following an Iranian attack that targeted US troops stationed across the region, as Iran launched multiple ballistic missiles toward a US base in Jordan at approximately 5:45 pm. Statements and video footage released by the US military indicate that all of the surprise IRGC missiles were successfully intercepted. The strike is widely perceived as a direct reaction to recent US actions aimed at Iranian navy boats.
Meanwhile, investors are closely monitoring the Federal Reserve’s upcoming policy decision, where the central bank is widely expected to leave interest rates unchanged. Traders are presently assigning a 30.5% probability to an immediate rate hike, reflecting an atypically elevated degree of uncertainty in proximity to a policy announcement. Looking further ahead, markets are also factoring in a 76.6% probability of a rate increase in September, reinforcing expectations that borrowing costs could remain elevated for an extended period.