Forex News

The Australian Dollar (AUD) is balancing stickier-than-expected domestic inflation against broader global market volatility. While upcoming second-quarter inflation data could reignite debate around near-term Reserve Bank of Australia (RBA) rate hikes, a recent pullback in global tech and AI-related stocks has sapped risk appetite, sending the high-beta currency lower. Furthermore, cautious rhetoric from RBA Governor Michele Bullock has tempered expectations for an immediate policy move, leaving markets focused on a potential hike later in the year.

Hotter CPI forecast keeps RBA rate hike debate alive

According to strategists at TD Securities, domestic inflation remains elevated. The bank projects the RBA’s preferred trimmed mean core CPI measure to rise 0.9% QoQ in Q2, an acceleration from 0.8% in Q1, pushing annual core inflation to 3.7%. Additionally, headline inflation for June is expected to print at 4.2% YoY, outpacing the market consensus of 4.0%. With housing components like rents and new dwelling purchases posing persistent upside pressure, a hot inflation print will keep pressure on the RBA to consider further policy tightening.

Higher rents and new dwelling purchase costs pose upside risks to our forecast and a hot CPI trimmed mean will ignite debate around another hike in the near-term as the labor market remains resilient.

Tech sector pullback and cautious RBA tone temper AUD momentum

MUFG observes that the Australian Dollar suffered recently, dropping as global risk-off sentiment rippled through equity markets. As a high-beta currency that heavily benefited from the global AI infrastructure buildout, the AUD is particularly vulnerable to corrections in chip and technology stocks. Simultaneously, comments from RBA Governor Michele Bullock refrained from explicitly signaling a rate hike as early as next month, tempering immediate hawkish speculation and reinforcing pricing for a single rate increase later in the year.

The Australian dollar has been undermined as well overnight by comments from RBA Governor Bullock, who refrained from sending a strong signal that they are planning to hike rates again as soon as next month.

Banks expect inflation to anchor RBA tightening, but sour risk sentiment caps gains

The banks project an environment where strong domestic fundamentals collide with shifting global sentiment. TD Securities expects sticky core inflation and housing cost pressures to keep the RBA on high alert, leaving the door open for additional rate hikes if upcoming CPI data surprises to the upside. Concurrently, MUFG emphasizes that while the Aussie maintains strong year-to-date backing, near-term upside will remain restrained by global tech corrections and the RBA's measured approach, keeping rate-hike expectations focused on the back half of the year.

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

TD Securities strategists argue that the Swiss Franc’s (CHF) underperformance since the February 2026 Iran shock reflects both low-yield carry dynamics and sensitivity to Gold prices. With the Swiss National Bank (SNB) expected to keep policy on hold and sight deposits muted, they see global rate paths and commodities as key drivers for Swiss Franc (CHF) crosses, limiting further sustained CHF weakness.

SNB on hold leaves CHF to globals

"Since the Iran shock at the end of February 2026, CHF has become one of the worst-performing global currencies along with SEK. Risk-off sentiment only supported CHF briefly in the first half of March, before a downtrend ensued."

"CHF has always been a low-yielding currency, but FX carry did not always drive CHF weaker. In fact, during the last global rate hiking cycle of 2022, when rate differential widened in favor of global currencies against CHF, CHF broadly rallied on the back of falling SNB sight deposits. Sight deposits have shown a muted change in 2026, which has allowed macro variables to dictate the direction of EUR/CHF. With the SNB likely to keep the policy rate on hold in the foreseeable future, rate paths for global central banks will matter more for CHF-crosses."

"CHF has been one of the worst-performing global currencies since the Iran shock in 2026. While CHF bears have been awakened with FX market participants largely attributing CHF weakness to carry, we find falling gold price also matters. The EUR/CHF rally could end if ECB pauses rate hikes after September; falling gold prices will be a prerequisite for CHF to stay weak."

"In the scenario that the ECB keeps policy rate on hold after one more hike in September, the EU-SZ rate differential would likely see its peak, and further gold selloff will be needed for the CHF to stay weak, in our view. In commodities, our research suggests gold prices could fall to $3,900/oz in the near-term before recovering into a new uptrend. As we see limited scope for a prolonged global rate hiking cycle and only modest gold price downside, our FX forecast has EUR/CHF staying around 0.93 into year-end 2026."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Brown Brothers Harriman’s (BBH) Elias Haddad reports that Australian Dollar (AUD) is underperforming after Reserve Bank of Australia (RBA) Governor Michele Bullock balanced a hawkish bias with a message of patience, noting easing domestic demand and labour conditions. RBA cash rate futures cut August hike odds from about 30% to 20%, with AUD/USD edging towards key support at the 200-day moving average as BBH sees risks skewed to an extended pause.

RBA patience trims hike expectations

"RBA Governor Michele Bullock stuck to the bank’s hawkish bias but also hinted at patience. Bullock said the full effects of increases in the cash rate from earlier in the year will take time to materialize, adding “there’s evidence that domestic demand and labour market conditions have been easing as required to bring the economy back towards balance.” Still, Bullock reiterated that the bank is prepared to “increasing the cash rate further if needed.”"

"RBA cash rate futures trimmed August rate hike bets from about 30% to 20% after Bullock’s remarks. AUD dipped against USD and most other major currencies. AUD/USD is edging down towards key support at 0.6904, the 200-day moving average."

"In our view, the risk is skewed towards an extended pause in the RBA tightening cycle which is a headwind for AUD: (i) RBA projects real GDP growth to be below potential over the next two years; (ii) RBA cash rate at 4.35% currently sits near the top of the range of model-based central estimates of the nominal neutral rate."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Scotiabank strategists Shaun Osborne and Eric Theoret note USD/CAD is trading near fair value around 1.4115, with the Canadian Dollar (CAD) constrained by wide short-term rate differentials versus the Dollar. Softer Oil is a mild drag, and while a Fed hold could allow some CAD gains, they do not expect meaningful improvement until rate spreads narrow later in 2026.

CAD capped by wide rate differentials

"The CAD is holding little changed against the generally stronger USD. Our fundamental fair value estimate suggests spot is trading right about where it should be in broad terms, with the equilibrium estimate edging up to 1.4086 today."

"Softer crude oil is a mild headwind but the real constraint on the CAD still comes from wide short-term interest rate differentials relative to the USD. A Fed hold tomorrow may allow the CAD to improve a little but scope for improvement is limited absent a significant narrowing in rate differentials—which we do not expect to develop until later this year."

"Neutral/bullish—The CAD’s technical situation is largely unchanged but spot is testing initial resistance 1.4115/25, ahead of 1.4160 and key resistance at 1.4250. Support is 1.4060."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Rabobank's Senior FX Strategist Jane Foley discusses British Pound (GBP) prospects around UK welfare reform, shifting voter polls and the upcoming Bank of England (BoE) decision. Foley highlights how PM Burnham’s fiscal choices and intra-Labour tensions could affect gilts and the Pound. With soft UK inflation but higher Oil prices, Foley expects steady BoE policy and sees EUR/GBP biased higher toward 0.87 over three months.

Politics and BoE expectations drive Pound

"These hints of fiscal restraint have pleased both the gilts market and GBP today. That said, it will be a big test of Burnham’s premiership given that Labour MPs have warned the PM that he would lose their support if he approached welfare reform with ‘punitive cuts’. For now, the markets and the electorate alike appear willing to give Burnham the benefit of the doubt."

"However, welfare reform is likely to spark friction within the Labour party and could be directional for both gilts and the value of the pound."

"If Burnham can demonstrate fiscal prudence, the outlook for GBP is set to turn more positive. If he can do this while maintaining coherence within the Labour party, the outlook for the pound will be even better. Realistically, however, there is significant scope for political friction to arise."

"This would likely be a source of volatility for the pound in the coming months. Indeed, it is possible that Burnham’s honeymoon with voters, Labour MPs and the markets will run out of steam into the autumn, if not before."

"Given the potential for disappointment over a lack of rate rises from the Bank this year, coupled with the likelihood of political friction over budget cuts, we see risk of an upside bias in EUR/GBP towards 0.87 on a 3-month view."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• US President Donald Trump says Iran can no longer break agreements.
• Donald Trump says he wants to avoid targeting power plants and bridges.
• Trump's comments ease fears of an immediate escalation in the Middle East.

In an interview with Fox News, US President Donald Trump said that Pickaxe Mountain, an Iranian underground nuclear site, is not a big problem, adding that the United States (US) is now in a very strong position with Iran.

The US President also said that he would like to avoid targeting critical infrastructure such as power plants and bridges. These remarks may reassure investors that Washington is seeking to avoid a broader regional conflict.

At the same time, Trump maintained a hardline stance on Iran, saying that Iran cannot break deals anymore. The comments suggest that Washington intends to maintain diplomatic pressure on Tehran while signaling a preference for measures that reduce the risk of a direct military confrontation.

Key takeaways

Pickaxe Mountain is not a big problem.

We have a very strong position with Iran now.

Would like to avoid attacking power plants, bridges.

I'm not looking to do that.

We cannot have Iran break deals anymore.

Market reaction

The US Dollar (USD) weakens following these comments, with the US Dollar Index (DXY) giving up its earlier gains to trade flat on the day around 101.53 at the time of writing. At the same time, Oil prices remain under pressure with West Texas Intermediate (WTI) US Oil losing 1.24% on the day to trade around $80.20 at the time of press.