AUD/USD bounces up but remains below 0.6500 on risk-off markets

• The Aussie Dollar is trimming losses after a sharp decline on risk-aversion.
• Israel's attack on Iran has boosted the US Dollar and other safe assets.
• The pair is struggling to return above a previous support zone at 0.6500.

The Australian Dollar is trimming some losses following a sharp decline earlier today as news that Israel bombed Iranian nuclear and military sites triggered a rush for safety, sending risk-sensitive assets, like the AUD, tumbling.

The AUD/USD depreciated nearly 1% during Friday's early trading to hit one-week lows right above 0.6450. The pair is attempting to regain lost ground during the European trading session, yet upside attempts are being capped below a previous support level at the 0.6500 area.

Tensions in the Middle East have crushed risk appetite

Israel attacked Iran with unprecedented strength earlier on Friday, hitting nuclear sites in Tehran and killing Revolutionary Guard officials. Iran reacted by launching a drone attack on Israel and walking out of the nuclear talks with the US scheduled for the next Sunday.

The risk of a regional conflict in the Area adds a new layer of uncertainty to an already troubled global economic outlook. The US-China trade deal failed to convince investors earlier this week, and Trump has threatened to impose higher tariffs on all partners if a deal is not reached before July 9--a highly adverse scenario for the risk-sensitive AUD.

In the macroeconomic front, Australian Consumer Inflation expectations jumped to 5% in June, from 4.1% in May, pushing back hopes of a July rate cut. In the US, on the other hand, soft PPI figures confirmed that the impact of tariffs on prices is yet to come, and kept hopes of a Fed cut in September alive.