Australian Dollar weakens to near 0.6900 as US launches more strikes against Iran

The AUD/USD pair trades with mild losses around 0.6915 during the early Asian session on Tuesday. Ongoing geopolitical tensions in the Middle East continue to boost a safe-haven currency such as the US Dollar (USD) against the Australian Dollar (AUD). All eyes will be on the US June Consumer Price Index (CPI) inflation data, which is due later on Tuesday. 

The US announced a new round of strikes on Iran on Monday, hours after US President Donald Trump said Washington is “reinstating” a blockade on Iran in the Strait of Hormuz and will charge other ships for safe passage. 

Early Tuesday, the United Arab Emirates (UAE) Ministry of Defence said that two national tankers, the Mombasa and Al Bahiyah, were targeted by two Iranian cruise missiles in the southern lane of the Strait of Hormuz, in Omani territorial waters. Signs of escalating tensions in the Middle East could provide some support to the Greenback, a safe-haven asset, and act as a headwind for the pair. 

Westpac analysts said that further interest rate increases remain on the table, with the major bank forecasting the Reserve Bank of Australia (RBA) may need to lift the cash rate again as early as August as inflation risks persist.

The Australian central bank has implemented three interest rate increases of 25 basis points (bps) so far this year, lifting the Official Cash Rate (OCR) to 4.35%. Current ASX 30-day Interbank Cash Rate Futures indicated a minor 16% market expectation of a rate hike to 4.60% at the upcoming August meeting.