Australian Dollar Holds Ground

The Australian dollar held its recent gains to around $0.70, staying near a three-week high as weakness in the US dollar offset concerns over the escalating Middle East conflict. The US has launched yet another wave of strikes against Iranian coastal military assets and reinstated a naval blockade of Iran. The renewed conflict pushed oil prices sharply higher and fueled fresh concerns over inflation. However, a broadly weaker greenback underpinned the Aussie, as easing US inflation pressures reduced expectations of a near-term Federal Reserve interest rate hike. In Australia, inflation expectations have moderated for a third month running to a six-month low of 4.7% in July 2026, down from 5.5% the previous month. Still, markets currently price only a 20% chance of a rate hike in August and around 60% odds by December. Traders now await upcoming key employment and inflation data due later this month for fresh clues on the policy outlook.

The Australian dollar strengthened to around $0.698, reaching more than a three-week high as softer-than-expected US inflation data weighed on the greenback and reduced expectations for further rate hikes by the Federal Reserve. Investors also looked past renewed US-Iran tensions after President Donald Trump threatened additional strikes and reinstated a US blockade against Tehran, focusing instead on Washington's decision to abandon its proposed levy on cargoes transiting the Strait of Hormuz, which improved risk sentiment. In Australia, expectations for further policy tightening remained subdued after the Reserve Bank’s three rate hikes since February. Markets currently price only a 20% chance of a rate hike in August and around 60% odds by December. Meanwhile, recent business surveys showed operating conditions remained soft in June and cost pressures continued to ease somewhat, while consumer confidence improved modestly in July, though will be challenged by rising fuel prices.

The Australian dollar held below $0.692, trading near three-month lows as escalating Middle East tensions weighed on global risk sentiment. US President Trump reinstated a blockade on Iranian vessels transiting the Strait of Hormuz and called on countries benefiting from US efforts to secure the vital shipping route to share the costs. The move followed renewed hostilities between Washington and Tehran, with the US targeting Iran’s maritime capabilities while Tehran retaliated against US allies in the region. In Australia, 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. Still, markets suspect the central bank could be done hiking after three rate rises to 4.35%, with a further move this year seen at around 50%. Traders now await key employment and inflation data due later this month for fresh clues on the policy outlook.