Australian Dollar Hovers 3-Year Highs

The Australian dollar rose above $0.70, building on the previous week’s modest 0.4% gain to rebound from a recent two-month low, as global risk appetite strengthened after the US and Iran reached an interim peace agreement. The deal reportedly includes sanctions relief for Iran, the lifting of blockades, and the dismantling of Tehran’s nuclear program. This lifted sentiment across financial markets, with Asian equities rallying, the US dollar weakening, and oil prices falling sharply. The development also provided relief for central banks ahead of a busy week of policy meetings. In Australia, markets have fully priced out a June rate increase after a series of soft economic data reinforced signs that the Reserve Bank’s three rate hikes earlier this year are gaining traction. The odds of an August hike has also fallen to around 35% from more than 80% a month ago. The May CPI report, due on June 24, will be closely watched for clues on the persistence of underlying price pressures.

The Australian dollar held around $0.70 and was on track to finish the week little changed, as markets await the Reserve Bank’s upcoming policy decision next week. Markets are increasingly pricing in the possibility that the central bank has already concluded its tightening cycle after three rate hikes this year began to filter through the economy. A run of softer economic releases, from GDP to housing prices, reinforced expectations that policymakers will keep the cash rate unchanged at 4.35% on Tuesday. Investors also scaled back bets for an August rate hike, with the odds falling sharply from above 80% a month ago to around 35%. The May CPI report due on June 24, will be pivotal after an unexpectedly soft April inflation reading, as policymakers look for clearer evidence that price pressures remain strong. Meanwhile, global risk appetite improved after US President Trump said a deal with Iran could be reached as early as this weekend after postponing planned attacks against Iran.

The Australian dollar held around $0.70, staying at a nine-week low as persistent Middle East tensions weighed on global risk sentiment. The US continued to launch strikes on Iran, with President Trump accusing Tehran of delaying talks over an interim peace deal, a day after alleging it had downed a helicopter. The prolonged conflict and the near-closure of the Strait of Hormuz, continued to disrupt energy flows from the Persian Gulf, raising concerns over inflationary pressures. In Australia, consumer sentiment weakened further in June as inflation and higher fuel costs continued to weigh on household finances. Focus now turns to the Reserve Bank's upcoming policy decision next week, where rates are widely expected to remain unchanged. Governor Bullock reiterated last week that the RBA remains firmly focused on bringing inflation down following three rate hikes earlier this year. Meanwhile, economists have scaled back bets for an August move and now see the rate peaking at 4.35%.