Australian Dollar declines ahead of China CPI data

AUD/USD extends its losses for the second successive day, trading around 0.7020 during the Asian hours on Wednesday. Traders will likely await the release of Consumer Price Index (CPI) and Producer Price Index (PPI) data for May from China, Australia’s close trading partner, due later in the day. Focus will be shifted toward the US May CPI inflation data due later in the North American session.

The AUD/USD pair depreciates as the US Dollar (USD) inches higher on increased risk aversion following renewed tensions in the Middle East. Reuters reported on Tuesday that the US launched strikes against Iran after US President Donald Trump said Tehran had shot down a US Apache helicopter in the Strait of Hormuz. Early Tuesday, Trump emphasized that Iran and the US are close to an agreement, though there have been few signs of progress since a tenuous ceasefire took effect in early April.

Uncertainty surrounding the Middle East peace deal continues to fuel concerns over inflation and expectations of elevated interest rates. Stronger-than-expected US May jobs data have boosted expectations of a Federal Reserve (Fed) rate hike this year.

Australian consumer confidence fell deeper into negative territory, with the Westpac–Melbourne Institute Consumer Sentiment Index dropping roughly 3% to 80.6 in June. This marks the fourth decline this year, keeping sentiment at some of its lowest levels in decades.