AUD/USD eases to 0.7060 as optimism about Iran’s truce ebbs

The Australian Dollar (AUD) trims gains on Friday as the US-Iran peace truce staggers. Cautious markets feature a mild return to the US Dollar’s (USD) safety following a risk-on week, and pulling the AUD/USD down from three-week highs near 0.7090 to session lows around 0.7060 so far. The pair, however, remains more than 2.5% up on the week.

Risk appetite waned on Friday, as investors’ optimism about the outcome of the peace talks scheduled for this weekend, in Islamabad, Pakistan, faded. 

Iranian authorities affirmed that they will not take part in any peace negotiation until Israel stops its attacks on Lebanon, and US President Donald Trump complained about the poor handling of the Strait of Hormuz by Tehran, which maintains a de facto blockade in a key waterway for global Gas and Oil supply.

Data from Australia released earlier this week revealed that an inflation gauge by the Melbourne Institute (MI) showed its highest monthly increase in history, highlighting the inflationary impact of the Oil shock triggered by the war in Iran. These figures strengthen the case for a near-term interest rate hike by the Reserve Bank of Australia (RBA). 

In the US, the March Consumer Price Index (CPI) numbers, due later on Friday, are likely to provide some distraction from the events in the Middle East. Consumer inflation is expected to have jumped to a 3.3% yearly rate, its highest level in nearly two years, providing further reasons for Federal Reserve (Fed) hawks to tip the scales towards monetary tightening.