Australian Dollar Holds at 9-Week Low

The Australian dollar held below $0.705, remaining at a nine-week low as persistent tensions in the Middle East weighed on global risk sentiment. The conflict intensified after the US launched fresh strikes on Iran, with President Trump accusing Tehran of downing a helicopter in the Strait of Hormuz, casting doubt on an already fragile ceasefire. The escalation drove energy prices higher, fueling inflation concerns and increasing the risk of further central bank rate hikes. In Australia, consumer sentiment weakened further in June as inflation and higher fuel costs continued to pressure household budgets. Focus now will be on 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 cash rate peaking at 4.35%.

The Australian dollar rose above $0.705, but stayed at a two-month low as investors assessed easing Middle East tensions while persistent cost-of-living pressures weighed on domestic sentiment. Household confidence deteriorated further into deep pessimism, with the Westpac–Melbourne Institute Consumer Sentiment Index falling about 3% to 80.6 in June, marking the fourth decline this year and among the weakest in decades. Households reported ongoing strain from elevated living costs, while a temporary fuel tax cut offered only limited and short-lived relief. Against this backdrop, investors are turning their attention to the upcoming policy decision from the Reserve Bank of Australia next week, where rates are widely expected to be held steady. Meanwhile, global risk sentiment got a minor lift after Iran and Israel announced a halt in fighting. However, the safe-haven US dollar remained stronger amid uncertainty over a US-Iran peace deal and hawkish Fed bets after a robust US jobs data.

The Australian dollar held below $0.71 after dropping nearly 2% in the previous week to hit a two-month low, pressured by a stronger US dollar. A robust US labor market report reinforced expectations that the Federal Reserve will raise interest rates this year, boosting the greenback more than 1% last week. Rising tensions in the Middle East and a fragile peace deal between the US and Iran also supported the safe-have currency, which further weighed on the risk-sensitive Aussie. Meanwhile, a slightly hawkish tone from the Reserve Bank of Australia could help cushion more losses in the AUD. RBA Governor Michele Bullock reiterated last week that the central bank remains firmly focused on bringing inflation down, following three rate hikes earlier this year that lifted the cash rate to 4.35%. She also noted that inflation remains too elevated, stressing that the board will take whatever measures it deems necessary to fulfill its mandate of achieving price stability and full employment.