Australian Dollar rises on hawkish RBA, Iran diplomacy pressures USD

• The Australian Dollar trades around 0.6950 against the US Dollar, up 0.10% on the day despite pulling back from its recent high.
• Hopes for diplomatic progress with Iran weigh on the US Dollar, while persistent geopolitical risks limit its downside.
• The hawkish stance of the RBA continues to support the Australian Dollar and limits the pair's downside potential.

AUD/USD trades around 0.6950 on Friday at the time of writing, up 0.10% on the day after reaching a more than two-week high earlier in the day. The pair gives back part of its gains as investors remain caught between a weaker US Dollar (USD) and lingering factors supporting the Greenback.

The Australian Dollar (AUD) benefits from the weakness of the US Dollar, driven by expectations of easing tensions in the Middle East. US President Donald Trump said that Iran had reached out to seek an agreement with Washington, while a White House official confirmed that technical talks on Iran's nuclear program and the Strait of Hormuz are continuing.

However, geopolitical concerns remain elevated following recent US strikes against Iranian targets and Tehran's retaliatory attacks on American interests across the region. At the same time, markets continue to price in at least one interest rate hike by the Federal Reserve (Fed) this year, a factor that helps limit losses in the US Dollar.

The Aussie also finds support from comments by the Reserve Bank of Australia (RBA). Assistant Governor Sarah Hunter reaffirmed that the central bank will take whatever action is necessary to bring inflation back to target, warning that additional monetary tightening could be required if higher energy prices linked to the Middle East conflict lead to persistently higher inflation expectations.

On the US side, the Minutes of the Fed’s June meeting showed that several policymakers expect interest rates to remain close to current levels by the end of the year, although many also see the possibility of rates ending the year at a higher level. Meanwhile, Fed of New York President John Williams said he does not expect a sustained increase in energy prices despite the renewed hostilities in the Middle East.

With no major macroeconomic releases scheduled for Friday, investors remain focused on geopolitical developments and monetary policy expectations, which are likely to remain the main drivers of AUD/USD in the near term.