AUD/USD under pressure as USD strength builds
AUD/USD finished lower last week at 0.6894 (-1.70%), logging its lowest weekly close in three months. For the month of June, the ‘Aussie Battler’ has retreated a hefty 4.06%, joining the free-falling Kiwi dollar (-5.62%) at the bottom of the currency performance table.
AUD/USD’s decline stems from a pincer movement of offshore and domestic headwinds. On the offshore front, the hawkish pivot from the Federal Open Market Committee (FOMC) under new Chairman Kevin Warsh has been a key driver. With the market now pricing in a Federal Reserve (Fed) rate hike before year-end, the resurgent greenback has enjoyed a significant tailwind to finish last week at a 13-month high.
This stronger US dollar is creating several problems for the Aussie. First, it is weighing on commodity prices, which erodes support for the Aussie dollar, often referred to as a ‘commodity currency’. Furthermore, a firmer US dollar makes resources more expensive for foreign buyers and dampens demand, a trend often exacerbated by rising US interest rates. Second, the prospect of tighter US monetary policy continues to narrow the yield differential the Aussie holds over the ‘big dollar’, making the greenback a relatively more attractive destination for yield.
Closer to home, a combination of mixed domestic data, including last week’s employment and consumer price index (CPI) reports, as well as the Reserve Bank of Australia’s (RBA) recent ‘on-hold’ decision, has seen the Australian interest rate market further trim expectations for additional RBA tightening this year. Current pricing shows only 5 basis points (bp) of a hike priced for the August RBA meeting, with roughly 10 bp of cumulative tightening priced for the remainder of 2026.
Looking ahead, the fortunes of AUD/USD this week will likely be dictated by Tuesday’s RBA meeting minutes (previewed below) and Thursday night’s non-farm payrolls report, which is expected to show a gain of around 115,000 jobs, with the unemployment rate forecast to hold steady at 4.3%.
RBA meeting minutes
Date: Tuesday, 30 June at 11.30am AEST
The RBA held the cash rate steady at 4.35% at its June meeting in a unanimous decision, marking the first pause after three consecutive 25 bp hikes earlier in the year. The Board noted that monetary policy is now well placed to respond to developments while continuing to emphasise that inflation remains too high. Notably, a rate hike was not discussed.
These minutes predate the release of last week’s CPI and labour force reports for May. The inflation update showed headline CPI cooling to 4.0% year-on-year, but the RBA’s preferred trimmed mean measure rose to 3.6% from 3.4%. The May labour force report delivered a strong bounce-back, with employment rising +40,300 after April’s soft print. However, the details were more nuanced, with gains heavily skewed towards part-time roles, underemployment ticking higher, and last month’s fall in jobs revised lower.
As such, the minutes will reflect the Board’s thinking based solely on information available at the time of the meeting and are expected to sound hawkish.
