Australian Dollar steadies above 0.6900 as markets price a negotiated end to Iran’s war

The Australian Dollar (AUD) keeps trading sideways against the US Dollar (USD) on Thursday, showing a surprising resilience to the escalating tensions in Iran. The pair has been steady above 0.6900 in the face of the rising tensions in Iran, with bearish momentum fading, as investors remain hopeful that Washington and Tehran will return to the negotiating table.

US and Iran exchanged attacks for the second consecutive day on Thursday, but failed to do any significant harm to the risk-sensitive Australian Dollar. Investors keep seeing these skirmishes as manoeuvres to gain leverage in the peace negotiations, with the idea of an all-out war discarded for now.

Fed minutes fail to support the USD

Beyond that, the minutes of the Federal Reserve’s (Fed) first monetary policy meeting under Chair Kevin Warsh’s leadership showed a government board split on the near-term monetary policy path. The overall tone of the minutes was tilted to the hawkish side, with the policymakers showing a distinct commitment to bring inflation to target, but the US Dollar dropped across the board following the release.

Data released on Thursday, however, was far from supportive for the Aussie. China’s Consumer Price Index (CPI) contracted 0.3% in June, beyond the 0.2% drop forecasted by market analysts and also below the 0.1% contraction seen in May. Yearly inflation slowed down to 1% from 1.2% in May, also below the 1.1% expected.

These figures confirm that domestic demand in the world's second-largest economy remains sluggish, which casts shadows on the Australian economic outlook. China is Australia's main trading partner, and its Gross Domestic Product (GDP) is strongly dependent on export activity.