• The Australian Dollar weakens against the US Dollar, with AUD/USD trading around 0.6970, down 0.36% on Friday.
• Escalating tensions between the United States and Iran are boosting safe-haven demand and supporting the US Dollar.
• The RBA's relatively hawkish stance and resilient Chinese economic data could still limit the Aussie’s downside.

AUD/USD trades around 0.6970 on Friday at the time of writing, down 0.36% on the day, as the Australian Dollar (AUD) comes under pressure for a second consecutive day amid renewed US Dollar (USD) strength. Despite the latest pullback, the pair is still on track for a third consecutive weekly gain.

The US Dollar is attracting renewed demand amid a sharp deterioration in market sentiment. The escalation of the conflict between the United States (US) and Iran is driving safe-haven flows, while concerns over disruptions to global energy supplies are reviving inflation fears. The latest developments indicate that the US continues its strikes against Iranian infrastructure, while Iran's Islamic Revolutionary Guard Corps (IRGC) claims to have targeted several US military facilities and has threatened to expand attacks to regional energy routes. Reports suggesting a possible closure of the Strait of Hormuz and the Red Sea Oil route by the Houthis are also keeping energy markets on edge.

These renewed inflation concerns come alongside resilient US economic data. Weekly Initial Jobless Claims declined more than expected, while the Philadelphia Fed Manufacturing Index surged, highlighting the continued strength of the US economy. In addition, several Federal Reserve (Fed) officials, including Lorie Logan and Philip Jefferson, maintained a hawkish tone, suggesting that another interest rate hike could be warranted if inflation fails to show sufficient improvement.

However, the outlook for the Australian Dollar continues to receive support from the Reserve Bank of Australia's (RBA) relatively hawkish policy stance. Meanwhile, economic data from China continues to point to resilient activity, providing an additional tailwind for the Aussie given the close trade relationship between the two economies.