The Australian Dollar (AUD) is under pressure against the US Dollar (USD) for the second consecutive session on Thursday, with the pair edging lower toward the 0.6640 area. Although the broader outlook may favor the AUD in light of dovish Federal Reserve expectations, ongoing geopolitical tensions and China-related uncertainty are capping the upside.

Softer US inflation data, released earlier this week, has strengthened market bets that the Federal Reserve may initiate rate cuts as early as September. Both headline and core Consumer Price Index (CPI) figures came in slightly below expectations, reducing the urgency for further policy tightening. This usually would weaken the USD and boost risk-sensitive currencies like the AUD.

However, geopolitical risks have overshadowed these monetary cues. The situation in the Middle East has intensified, as US officials confirm that Israel is preparing for a potential operation into Iran, prompting Washington to reduce its presence in the region and advise some Americans to leave. These developments are fueling safe-haven demand for the USD, thereby limiting gains for the Australian Dollar.

Additionally, trade-related tensions between the US and China persist, creating ongoing uncertainty. While President Trump announced on Truth Social that a US-China trade deal is “done”—with the US securing 55% tariffs and China 10%—the lack of formal confirmation has left markets cautious. The statement initially buoyed sentiment, but doubts linger.

Meanwhile, China’s move to restrict rare-earth mineral exports to US firms—issuing only six-month licenses—adds a strategic edge to the ongoing trade tensions. Since Australia’s economy is closely tied to China’s, such developments could indirectly impact the AUD, especially if Chinese growth slows or bilateral ties further strain.

Trade Idea:

Consider buying AUD/USD if it holds above 0.6620, targeting 0.6700, with a stop-loss below 0.6585, amid Fed rate cut bets and trade optimism—while remaining cautious of geopolitical headwinds.