Aussie Stabilizes Amid US-Iran Diplomacy, Hawkish RBA Outlook

The Australian Dollar (AUD) steadied on Tuesday as diplomatic efforts between the US and Iran took center stage, weighing on the US Dollar.

A hawkish Reserve Bank of Australia (RBA) outlook continues to provide support for the Aussie ahead of next week's policy meeting.

Iran has offered to reopen the Strait of Hormuz within seven days if the US lifts its blockade and eases military pressure, according to a senior Iranian official. This development pushed Oil prices lower and weighed on the US Dollar.

However, expectations of further Federal Reserve (Fed) rate hikes continue to offer support to the US Dollar, cushioning its downside. The US central bank raised rates by 25 basis points last week to 3.75%-4.00% and signaled that further tightening may be needed to bring inflation back toward its 2% target.

The RBA has also been hawkish, raising rates three times this year to 4.35%, while core inflation remains above the 2%-3% target range. Markets are pricing in around a 95% chance of another 25-basis-point rate hike to 4.60% at the September 29 meeting.

The AUD/USD traded around 0.7107, down 0.15% on the day after touching an intraday low of 0.7092. The wider interest-rate gap with the US could provide additional support to the Aussie if the RBA raises rates again next week.