The Australian dollar slipped below $0.690, hovering near a three-month low and heading for a steep weekly loss, as the US dollar stayed broadly firm on expectations of further US interest rate hikes. The greenback has strengthened since the Federal Reserve adopted a surprisingly hawkish tone last week, leading markets to price in a roughly 75% probability of a rate increase as early as September.
By contrast, expectations for additional tightening by the Reserve Bank of Australia have moderated, despite a modest uptick in underlying price pressures in May. Investors now anticipate that second-quarter inflation will undershoot the RBA’s 8% forecast, reinforcing the view that the tightening cycle has likely peaked. Market pricing currently suggests only about a 50% chance of another increase in the 4.35% cash rate, and some participants have begun to factor in rate cuts in the second half of 2027.
The Australian dollar is also on track for a second consecutive monthly decline of more than 4%, as escalating tensions in the Middle East and a selloff in technology stocks earlier this month have weighed on risk-sensitive assets.
