• The Australian Dollar edges higher on Thursday despite heightened geopolitical tensions.
• Markets continue to price in a return to negotiations between the US and Iran, limiting risk aversion.
• The US Dollar weakens after the Fed Minutes and despite stronger-than-expected US labor market data.

AUD/USD trades around 0.6940 on Thursday at the time of writing, up 0.16% on the day, as the weaker US Dollar (USD) supports the pair despite persistent tensions in the Middle East. Investors continue to view the latest exchange of attacks between the United States (US) and Iran as an attempt by both sides to strengthen their negotiating positions ahead of a potential return to peace talks, limiting demand for safe-haven assets for now.

The US Dollar remains under pressure on Thursday, with the US Dollar Index (DXY) down 0.11% near 100.95 at the time of press. The Greenback struggles to benefit from stronger-than-expected US economic data, as the US Department of Labor reported that Initial Jobless Claims fell to 215K in the week ending July 4, down from 217K previously, while Continuing Jobless Claims edged up slightly to 1.814M.

The US Dollar also remains weighed down by the market's reaction to the Minutes of the latest Federal Reserve (Fed) meeting. The Minutes showed that policymakers remain concerned about inflation risks but are divided over the future path of monetary policy, reinforcing expectations of future policy easing and weighing on the Greenback.

In Australia, investors continue to assess the outlook for the Reserve Bank of Australia (RBA). Assistant Governor Sarah Hunter recently reiterated that the central bank stands ready to act if necessary to return inflation to target while maintaining sustainable full employment. Those comments continue to limit expectations of a near-term easing cycle by the RBA.

Meanwhile, China's economic outlook remains a source of caution for the Australian Dollar. Recent data showed that inflation in China remains subdued, highlighting weak domestic demand in Australia's largest trading partner, a factor that could limit the Aussie's upside potential over the medium term.