Australian Dollar Holds Losses

The Australian dollar held its recent decline to around $0.698, pulling back from a recent three-week high as the escalating US-Iran conflict weighed on risk assets. The safe-haven US dollar strengthened, while oil prices climbed after hostilities expanded beyond military targets to critical infrastructures. Shipping through the Strait of Hormuz has also largely come to a halt, with the US enforcing a naval blockade on Iranian ports and Iran targeting vessels, raising fears that disruptions to energy supplies could reignite global inflation and complicate the policy outlook for major central banks. In Australia, expectations for further policy tightening remained subdued, though will be challenged by rising fuel prices. Markets assign about a 70% chance of one final increase by December, while some investors expect the RBA to begin cutting rates next year. Upcoming key employment data and flash PMI surveys later this week will offer further clues on the country’s economic health.

The Australian dollar fell below $0.70, but stayed near a three-week high and on track for a third consecutive weekly gain as the US dollar remained broadly weaker, while the escalating Middle East conflict weighed on risk sentiment. Softer-than-expected US consumer and producer inflation data prompted markets to scale back the likelihood of a near-term Federal Reserve rate hike, reducing support for the greenback. However, gains in the Aussie were capped by rising geopolitical risks after Brent crude surged about 17% over the past two weeks on fears that prolonged disruptions to shipping through the Strait of Hormuz could reignite global inflation and complicate the policy outlook for major central banks. In Australia, expectations for further policy tightening remained subdued, with markets pricing only a 20% chance of a rate hike in August and around 60% odds by December. Upcoming key employment and inflation data due later this month will offer further clues on the policy outlook.

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. 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.