Australian Dollar Hovers Near 3-Month Lows

The Australian dollar hovered around $0.693, extending the previous week’s roughly 0.2% loss to trade near three-month lows as persistent Middle East tensions weighed on global risk sentiment. The US launched another wave of strikes on Iran over the weekend in response to an attack on a container ship in the Strait of Hormuz, while Tehran retaliated by targeting US military facilities across the Middle East. Meanwhile, hawkish rhetoric from the Reserve Bank of Australia helped limit the Aussie’s losses. RBA Assistant Governor Sarah Hunter said last week that the board will act as needed to return inflation to its target, warning some tightening may be required if the oil shock lifts inflation expectations. Markets currently price around a 60% chance of one more rate hike later this year, up from roughly 40% previously, though futures imply only a 19% odds of an August move. Traders now await key employment and inflation data due later this month for fresh clues on the policy outlook.

The Australian dollar rose to around $0.695 but was on track to finish the week largely unchanged as investors monitored developments surrounding the Strait of Hormuz following renewed tensions in the Middle East. The safe-haven US dollar strengthened, while oil prices climbed after the US and Iran carried out military strikes in the Gulf earlier this week. However, both countries are now set to resume peace talks despite the recent escalation. Meanwhile, the International Monetary Fund lowered its 2026 growth forecast for Australia to 1.9% from 2.0% and warned inflation would remain elevated at around 4% this year. The Reserve Bank of Australia will meet in August and is expected to keep its cash rate unchanged at 4.35%, though markets still price in a roughly 60% chance of one final rate hike later this year, depending on the movement of oil prices. Traders also await key employment and inflation data due later this month, which could offer fresh clues on the policy outlook.

The Australian dollar held its recent decline to around $0.694, moving back toward three-month lows as renewed US-Iran tensions dampened global risk sentiment. Traders flocked to the safe-haven US dollar, while oil prices jumped after the US launched a fresh wave of strikes against Iran and revoked a license allowing the country to sell oil following attacks on tankers in the Strait of Hormuz, fueling concerns over renewed disruptions in energy supplies. Meanwhile, RBA Assistant Governor Sarah Hunter said recent oil price shocks had weakened consumer and business confidence but noted the Australian economy remained resilient. She also reiterated that the central bank would act as needed to return inflation to target and maintain sustainable full employment. Still, markets continued to expect the Reserve Bank to keep its cash rate unchanged in August after delivering three rate hikes this year, while the odds of another increase has eased, with a November hike now priced at around 40%.