The Australian dollar hovered around $0.693, extending the previous week’s roughly 0.2% decline and trading near a three-month low, as ongoing tensions in the Middle East continued to dampen global risk appetite. The United States launched another round 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 region.
Still, hawkish signals from the Reserve Bank of Australia helped limit the currency’s downside. RBA Assistant Governor Sarah Hunter stated last week that the board will take whatever action is necessary to return inflation to target, cautioning that additional tightening may be required if the oil shock pushes up inflation expectations.
Money markets now assign roughly a 60% probability to one further rate hike later this year, up from about 40% previously, although futures indicate only a 19% chance of a move in August. Traders are looking ahead to key employment and inflation releases due later this month for clearer guidance on the policy outlook.
