The Australian dollar extended its recent slide below $0.705, retreating to more than two-month lows as the US dollar strengthened following the Federal Reserve’s latest interest rate decision under new Chair Kevin Warsh. Although the Fed left its policy rate unchanged, half of FOMC members anticipate at least one rate increase later this year amid mounting concern over inflation.
In his first official communication, Chair Warsh moved away from traditional forward guidance, stressing a more restrained, inflation-focused approach without offering explicit signals on the path of future rate moves.
In Australia, the Reserve Bank has signaled that further policy tightening remains on the table to contain price pressures. Governor Michele Bullock underscored that inflation is still too high and reiterated that additional rate hikes cannot be ruled out. While markets increasingly believe the tightening cycle has likely peaked, the RBA’s hawkish rhetoric has preserved roughly a 50% implied probability of one final increase this year, though the likelihood of a move in August is priced at only about 25%.
