• AUD/USD attracts fresh sellers following the release of softer-than-expected Australia’s Q1 GDP.
• Geopolitical risks and hawkish Fed bets benefit the USD, exerting additional pressure on the pair.
• China’s upbeat Services PMI could support the Aussie as traders now look to the US macro data.

The AUD/USD pair drops to the 0.7150 area during the first half of the European session on Wednesday, reversing the previous day's positive move amid a broadly firmer US Dollar (USD). Spot prices, however, remain confined within a familiar range, warranting some caution before placing aggressive bearish bets.

The Australian Dollar (AUD) started weakening in reaction to softer-than-expected domestic data, showing that the economy lost momentum in the first quarter and grew 0.3% compared to 0.8% rise in the prior quarter. This follows a slowdown in Australia's headline annual inflation rate in April and a rise in the Unemployment Rate to the highest in about four-and-a-half years, further tempering bets for an interest rate hike by the Reserve Bank of Australia (RBA) in June. Furthermore, persistent geopolitical risks continue to act as a tailwind for the safe-haven US Dollar (USD) and exert downward pressure on the AUD/USD pair.

In the latest developments surrounding the Middle East crisis, the US military’s Central Command (CENTCOM) said its forces conducted “self-defence” strikes on Iran’s Qeshm Island. In response, Iran launched a series of missiles and drones on US military facilities in Kuwait and Bahrain, though US and Gulf air defence systems intercepted most of the attacks. Adding to this, fighting between Israel and Hezbollah has also intensified amid the lack of a breakthrough in US-Iran peace talks. This, along with bets that the US Federal Reserve (Fed) will hike interest rates in 2026, supports the USD and weighs on the AUD/USD pair.

According to the CME Group's FedWatch Tool, traders are currently assigning over a 50% probability that the US central bank will raise borrowing costs by 25 basis points (bps) at the December policy meeting. The bets were further lifted by Tuesday's comments from Cleveland Fed President Beth Hammack, saying that the central bank remains firmly committed to getting inflation back to 2% and may need to act soon if inflation trends don't cool. However, China's upbeat Services PMI could offer some support to the China-proxy Aussie and help limit any further depreciating move for the AUD/USD pair.

Market participants now look forward to the US economic docket – featuring the release of the ADP report on private-sector employment and ISM Services PMI. This, along with speeches from influential FOMC members, would drive the USD and provide some impetus to the AUD/USD pair. The focus, however, will remain glued to the incoming geopolitical headlines and the closely-watched US monthly employment details – popularly known as the Nonfarm Payrolls (NFP) report on Friday.