Australian Dollar softens to near 0.7200 as Trump and Xi set for second day of talks

• AUD/USD weakens to around 0.7205 in Friday’s early Asian session. 

• Traders will closely monitor Trump's second and final day of talks with Chinese President Xi Jinping in Beijing. 

• Hotter-than-expected inflation reports have prompted markets to price out rate cuts later this year. 

The AUD/USD pair attracts some sellers to near 0.7205 during the early Asian trading hours on Friday. Markets remain cautious ahead of the second day meeting between US President Donald Trump and Chinese President Xi Jinping in Beijing on Friday.

Trump said during the first day of the meeting on Thursday that he hoped the relationship between the US and China would be "stronger and better than ever before.” He added that Xi offered help to resolve the conflict and pledged not to provide military equipment to Iran. Xi also wants to see the critical Strait of Hormuz reopened.

The focus is on Taiwan, as Xi warned the US President that mishandling China's claims on Taiwan could cause "clashes and even conflicts" as the disputed island has been a major point of discussion amid the talks. Any signs of tensions between the US and China could undermine the China-proxy Aussie, as China is a major trading partner for Australia. 

Recent accelerating US inflation data have reinforced expectations that the US Federal Reserve (Fed) will maintain high interest rates for an extended period, supporting the US Dollar (USD). Markets are now pricing in nearly a 32.9% probability that the Fed will raise the interest rate by at least 25 basis points (bps) at the December meeting, up from 22.5% a week ago, according to the CME FedWatch tool.