Australian Dollar softens amid Middle East tensions

The AUD/USD pair trades in negative territory near 0.7145 during the early Asian session on Monday. The Australian Dollar (AUD) softens against the US Dollar (USD) amid fragile peace talks in the Middle East, and markets brace for the Federal Reserve (Fed) interest rate decision later on Wednesday. 

Efforts to resume peace talks over the Iran war stalled after US President Donald Trump called off that delegation to Pakistan to potentially discuss directly with Iran, per Bloomberg. "If they want to talk, they can come to us, or they can call us. You know, there is a telephone. We have nice, secure lines," said Trump. Iranian President Masoud Pezeshkian stated that his nation won’t enter “imposed negotiations under threats or blockade.”

Furthermore, the ceasefire is under growing pressure as Israel and Hezbollah have increased attacks on each other despite a US-brokered extension to the peace deal that was supposed to halt fighting for three more weeks. Uncertainty and escalating tensions in the Middle East could provide some support to a safe-haven currency such as the Greenback and act as a headwind for the pair in the near term. 

Traders will keep an eye on the Australian March Consumer Price Index (CPI) inflation report, which is due on Wednesday. The headline CPI is expected to show an increase of 4.7% YoY in March, compared to 3.7% in February. Any signs of hotter inflation in Australia could solidify bets for a 25-basis-point (bps) rate hike at the Reserve Bank of Australia’s (RBA) May 5 meeting and could lift the Aussie against the USD.