AUD/USD Eases Below 0.7050 As The Market Digests The Ceasefire In Iran

• AUD/USD pulls back to 0.7040 from session highs at 0.7085.

• The Aussie has rallied more than 2% so far this week.

• Recent Australian data has increased concerns about the inflationary impact of energy prices.

The Australian Dollar (AUD) is trading higher against the US Dollar (USD) for the third consecutive day on Wednesday, boosted by investors’ optimism about the ceasefire in Iran. The pair, however, has retreated from session highs at 0.7084 during the European trading session, returning to levels around 0.7040 at the time of writing as the dust from the US-Iran deal settled.

News that Washington and Tehran had reached a deal to stop the hostilities for two weeks, less than two hours before US President Trump’s deadline, was welcomed by the market during Wednesday’s Asian session. Risk-sensitive assets like the Aussie rallied sharply while the US Dollar and Oil prices retreated sharply.

Direct US-Iran negotiations

The deal is still fragile, and Iran said it keeps its finger on the trigger, but the market remains hopeful that Tuesday’s agreement might lead to a durable peace and lower energy prices. Iranian authorities also affirmed that direct talks with US negotiators will start on Friday in Islamabad, Pakistan, feeding hopes of de-escalation of the tensions in a highly volatile area.

Data from Australia released earlier this week showed that the TM-MI Inflation Gauge posted its sharpest monthly advance in history, with a 1.3% increase in March, following a 0.2% decline in February. Year-on-year, inflation accelerated to 4.3%, its highest level in more than two years. These figures increase concerns of stagflation and pose a significant challenge for the Reserve Bank of Australia’s (RBA) policymakers.

In the US, the focus on Wednesday will be on the minutes of the March Federal Open Market Committee (FOMC), which might give some further insight into the bank's next monetary policy steps. These comments, however, will be contrasted by Friday’s Consumer Prices Index (CPI) figures, the first hard data reflecting the inflationary impact of Iran’s war.