AUD/USD Struggles Amid US-Iran Tensions and Rising Inflation

The Australian dollar has struggled to make significant gains against the US dollar on Thursday, despite a late rebound from its two-week low. Spot prices currently trade just above mid-0.6900s, nearly unchanged for the day, and are seen as favoring bearish traders.

The US dollar, which had reached a one-week low after the FOMC decision on Wednesday, has recovered and is being driven by rising inflation dynamics due to volatile oil prices. The rapidly changing inflation landscape keeps US Federal Reserve rate hike bets firmly on the table, and this, along with escalating tensions between the US and Iran, supports demand for the safe-haven Greenback.

The US launched strikes against Iran in response to surprise Iranian missile attacks on American forces based in the Middle East on Tuesday. This comes on top of joint US-Saudi strikes against Iran-aligned terrorists in Iraq and raises the risk of a broader regional conflict. Reports suggest that Iran-backed Houthis in Yemen are considering imposing fees on commercial ships sailing through the southern Red Sea.

Meanwhile, the ongoing US-Iran standoff over the Strait of Hormuz continues to support crude oil prices, fueling worries about energy-driven inflation and backing the case for policy tightening by the Fed. This favors USD bulls and should continue to cap the AUD/USD pair amid reduced bets for an immediate rate hike by the Reserve Bank of Australia.