Australian Dollar recovers slightly; firm USD to cap the upside ahead of FOMC Minutes

The AUD/USD pair attracts some buyers following an intraday dip to the 0.7085 region on Wednesday and moves away from its lowest level since April 14, touched the previous day. Spot prices climb to the 0.7115 area during the first half of the European session, though any meaningful appreciation seems elusive amid a bullish US Dollar (USD).

Investors remain skeptical about a potential US-Iran peace deal amid major disagreements over Tehran's nuclear program and the critical Strait of Hormuz. In fact, US President ​Donald Trump said on Tuesday that America may need to strike Iran again if a deal is not reached. This keeps geopolitical risks in play, which, along with hawkish US Federal Reserve (Fed) expectations, lifts the USD to a six-week high and might cap the upside for the AUD/USD pair.

Investors remain worried that the war-driven surge in energy prices will rekindle inflationary pressure and force the US Federal Reserve (Fed) to tighten its monetary policy. According to the CME group's FedWatch Tool, traders are now pricing in over a 50% chance that the US central bank will hike interest rates by at least 25 basis points (bps) in 2026. This remains supportive of elevated US Treasury bond yields and backs the case for a further USD appreciation.

The USD bulls, however, might opt to wait for more cues about the Fed's policy path before placing fresh bets. Hence, the focus will remain glued to the release of FOMC Minutes later today. In the meantime, some repositioning trade prompts intraday short-covering and offers some support to the AUD/USD pair. The fundamental backdrop, however, makes it prudent to wait for strong follow-through buying before confirming that spot prices have bottomed out.