Australian Dollar Struggles Against Softer US Dollar Amid Geopolitical Uncertainty

• AUD/USD consolidates losses, balancing a subdued Australian Dollar against a softer US Dollar amid geopolitical uncertainty.

• The CME FedWatch Tool suggests that traders price in a 79.5% chance of a December Fed rate hike.

• RBA's Chris Kent stated that while the cash rate remains preferred, unconventional tools are ready for future crises.

AUD/USD remains subdued for the second successive day, trading around 0.6890 during the European hours on Monday. The pair is consolidating its recent losses as a subdued Australian Dollar (AUD) battles a softer US Dollar (USD) amid persistent geopolitical uncertainty.

The downside for the AUD/USD pair remains cushioned after reports emerged that Washington and Tehran have agreed to a temporary halt in hostilities ahead of peace talks resuming in Doha this week.

However, the Greenback's declines are also being capped as traders maintain a cautious stance, closely monitoring fluid Middle East headlines and assessing how regional stability will impact global risk appetite. This sudden diplomatic window opens after days of retaliatory strikes, which began on Thursday when an Iranian projectile struck a cargo vessel, prompting both nations to trade accusations over violating their June 17 interim ceasefire. Official delegations are scheduled to meet in Qatar on Tuesday to negotiate an end to the conflict.

Meanwhile, domestic focus turned to monetary policy following comments from Reserve Bank of Australia (RBA) Assistant Governor Chris Kent. During a review of alternative policy options, Kent highlighted that while the cash rate target remains the RBA's primary and preferred instrument, the central bank is prepared to deploy unconventional tools during future economic or financial crises. Should borrowing costs return to near-zero levels, the RBA could utilize bond purchases, forward guidance, and expanded liquidity measures to support the economy.