AUD/USD may depreciate as the US Dollar could find support, as three policy members dissented in favour of a rate hike. Australia’s 10-year yield decreased to 4.9% following a decline in June inflation, which has subsequently tempered expectations for rate hikes. Markets have reduced the likelihood of a 2026 RBA rate increase to 50% in light of the recent softer inflation data. AUD/USD inched higher following two days of losses, trading around 0.6960 during the Asian hours on Thursday. The currency pair may face potential downside pressure as the US Dollar could gain strength following a hawkish interest rate pause by the Federal Reserve. Although the Fed maintained rates in the 3.5%–3.75% range during its July policy meeting, a result largely expected by the markets, the decision underscored a prevailing hawkish sentiment. Dallas Fed President Lorie Logan, Cleveland Fed President Beth Hammack, and Minneapolis Fed chief Neel Kashkari all expressed dissent, advocating instead for a 25 basis point rate increase. Reinforcing this stance during the post-meeting press conference, Fed Chairman Kevin Warsh stated that while the central bank will not offer forward guidance on future rate paths, it remains committed to taking all necessary actions to achieve its 2% inflation target.
Warsh’s press conference tone is evidently more assertive than the established baseline, with the FXS Speechtracker score at 7/10 compared to a historical 6/10, highlighting a stronger dedication to combating inflation. The repeated insistence that “only one target and it is 2%” and that “inflation cannot be cured in 9 weeks” indicates a firm and patient approach to tightening conditions, even as Warsh emphasises “impressive resilience” in the economy and robust labour markets. The emphasis on trend over short-term data, the rejection of any tolerance for a higher inflation target, and the pledge that the Committee “will not hesitate to act” collectively reinforce a hawkish bias supportive of the Dollar. The FXS Fed Sentiment Index increased by +18.94 points to 147.58, remaining in hawkish territory and aligning with the robust tone reflected by the FXS Speechtracker. This elevated reading, significantly surpassing the neutral 100 mark, indicates that markets ought to maintain a pricing strategy that reflects a sustained anti-inflation posture, with potential upward pressures on the Dollar as Warsh emphasises commitment to achieving the 2% target.
The Australian Dollar may encounter headwinds as Australia’s 10-year government bond yield retreats toward 4.9%, backing off multi-week highs following weaker inflation data. Headline inflation unexpectedly decelerated to a four-month low of 3.8% in June, falling short of both May’s figures and market expectations of 4.0%. Although inflation remains above the Reserve Bank of Australia’s 2%–3% target range, the cooler readings led markets to drastically slash expectations for another rate increase this year, dropping probabilities to around 50%, down from over 90% prior to the data release. These softer economic readings have largely solidified expectations that the RBA will maintain its policy stance at the forthcoming meeting on August 11.
However, the downside for the Australian Dollar may find some support, as the RBA governor recently cautioned that additional rate hikes cannot be entirely ruled out if necessary to return inflation to its target. Strategists highlight that Australia’s inflation pulse showed little sign of easing in June, with “Australia’s headline CPI rose 3.8% y/y in June 2026, unchanged from May.” They add that underlying price pressures also remained stubborn, noting that “underlying inflation, measured by the trimmed mean, was steady at 3.6% y/y, also flat on the previous month.” This combination of unchanged headline and core readings underscores persistent inflation dynamics that keep attention firmly on RBA policy and the Aussie’s performance.