The Australian dollar hovered below $0.71 after sliding nearly 2% in the previous week to a two-month low, weighed down by a stronger US dollar. A robust US labor market report reinforced expectations that the Federal Reserve will raise interest rates this year, lifting the greenback by more than 1% over the week.
Geopolitical concerns also underpinned demand for the safe-haven US currency. Rising tensions in the Middle East and a fragile peace deal between the US and Iran added to risk aversion, further pressuring the risk-sensitive Aussie.
Still, a slightly hawkish tone from the Reserve Bank of Australia may help limit further losses in the AUD. RBA Governor Michele Bullock reiterated last week that the central bank remains firmly focused on bringing inflation down, following three rate hikes earlier this year that pushed the cash rate to 4.35%. She also emphasized that inflation is still too high and stressed that the board will take whatever steps are necessary to achieve its mandate of price stability and full employment.
