Australian Dollar remains depressed near two-month lows in risk-off markets

The Australian Dollar (AUD) has given away previous gains and is trading lower for the third consecutive day against a stronger US Dollar (USD) on Thursday. The uncertain situation in the Middle East continues to weigh on the risk-sensitive Aussie, while rising bets of Federal Reserve (Fed) rate hikes are buoying the Greenback.

Investors remain averse to risk as the US and Iran exchange attacks for the second consecutive day, with news from the region giving conflicting views. US President Donald Trump threatened earlier on Thursday with further attacks if Tehran does not sign a peace deal, while CNN reported that negotiations are still on track, citing diplomatic sources.

On the macroeconomic front, US Consumer Price Index (CPI) figures released on Friday showed the hottest yearly inflation levels in more than three years. These figures, coupled with the strong labour market report released last week, have boosted hopes that the US central bank will have to hike rates at least once this year, which is providing additional support to the USD.

In Australia, the calendar has been thin this week. Trade Balance data from China, a key partner, was supportive, but the positive impact on the Aussie was offset by weak Australian consumer confidence data and fears of an all-out war in Iran, which would extend the closure of the Strait of Hormuz.

Next week, the focus will shift to the Reserve Bank of Australia (RBA), which is expected to keep rates on hold and might shed some light on the next steps as weak Australian data have boosted speculation about rate cuts.