AUD Gains as US Dollar Struggles Amid Fading Rate Hike Bets and Iran Tensions

The Australian Dollar continues to gain strength against its US counterpart as fading expectations of a Federal Reserve interest rate hike weigh on the US Dollar. The AUD/USD exchange rate has now risen for three consecutive days, trading around 0.7110 during Asian hours on Tuesday.

This shift in market sentiment comes after recent data releases suggested a slower pace of economic growth in the United States. Last week's consumer price inflation data showed only modest gains, while the July US Nonfarm Payrolls unexpectedly declined.

As a result, expectations for a Fed rate hike have dropped to 35%, down from 47% a month ago, according to the CME FedWatch Tool. This decline in anticipation of further rate hikes has kept the US Dollar subdued, allowing the Australian Dollar to gain ground.

The situation is also being influenced by rising geopolitical tensions between the United States and Iran. President Trump's statement that he has no interest in renewing the expiring agreement with Iran and his idea of declaring the critical waterway as US territory under total American control have added to market uncertainty.

Australia's economic data releases this week, including the Westpac Consumer Confidence index for August and the second-quarter Wage Price Index, will also be closely watched. However, strategists at Brown Brothers Harriman note that these releases are unlikely to shift RBA rate expectations, as wages are projected to rise by 0.8% quarter-on-quarter.