The Australian dollar extended its decline below $0.687 to a new three-month low, as a stronger US dollar outweighed the impact of the Reserve Bank of Australia’s (RBA) restrictive policy stance. Minutes from the RBA’s June meeting showed that policymakers agreed interest rates must remain at restrictive levels to curb excess demand and return inflation to target, even as economic growth weakens. The board also reiterated it is prepared to raise rates further if necessary, noting that tensions in the Middle East continue to pose upside risks to inflation.
However, despite the hawkish messaging, the recent pullback in oil prices has prompted investors to scale back expectations for another rate hike this year to around 40%, with markets also beginning to factor in the possibility of rate cuts from as early as mid-2027. At the same time, the Australian dollar remained under pressure from a firmer US dollar after the Federal Reserve adopted a more hawkish stance, leading markets to price in a potential US rate increase as soon as September.
As a result, the AUD is on track for a monthly loss of more than 4% and a quarterly decline of about 0.5%.
