Forex News

• AUD/USD consolidates losses, balancing a subdued Australian Dollar against a softer US Dollar amid geopolitical uncertainty.
• The CME FedWatch Tool suggests that traders price in a 79.5% chance of a December Fed rate hike.
• RBA's Chris Kent stated that while the cash rate remains preferred, unconventional tools are ready for future crises.

AUD/USD remains subdued for the second successive day, trading around 0.6890 during the European hours on Monday. The pair is consolidating its recent losses as a subdued Australian Dollar (AUD) battles a softer US Dollar (USD) amid persistent geopolitical uncertainty.

The downside for the AUD/USD pair remains cushioned after reports emerged that Washington and Tehran have agreed to a temporary halt in hostilities ahead of peace talks resuming in Doha this week.

However, the Greenback's declines are also being capped as traders maintain a cautious stance, closely monitoring fluid Middle East headlines and assessing how regional stability will impact global risk appetite. This sudden diplomatic window opens after days of retaliatory strikes, which began on Thursday when an Iranian projectile struck a cargo vessel, prompting both nations to trade accusations over violating their June 17 interim ceasefire. Official delegations are scheduled to meet in Qatar on Tuesday to negotiate an end to the conflict.

Meanwhile, domestic focus turned to monetary policy following comments from Reserve Bank of Australia (RBA) Assistant Governor Chris Kent. During a review of alternative policy options, Kent highlighted that while the cash rate target remains the RBA's primary and preferred instrument, the central bank is prepared to deploy unconventional tools during future economic or financial crises. Should borrowing costs return to near-zero levels, the RBA could utilize bond purchases, forward guidance, and expanded liquidity measures to support the economy.

ING’s Francesco Pesole expects the European Central Bank’s Sintra forum to maintain a broadly hawkish stance, with President Lagarde unlikely to signal a dovish shift ahead of June CPI. Their macro team forecasts slightly above-consensus inflation, supporting another ECB hike in September, and they see EUR/USD downside limited to 1.130 with a gradual recovery toward 1.150 in July.

ECB hawkish bias underpins Euro

"The European Central Bank's Sintra forum runs from today to Wednesday. While it has at times been used to signal shifts in stance, we do not expect President Christine Lagarde to do so in today’s opening remarks."

"Our macro team looks for slightly above-consensus inflation at 3.1% headline and 2.6% core. That would point to a stalling trend, but not one that allows the ECB to ease its guard."

"The preference emerging from the many ECB speakers this week may well be to keep markets leaning toward a hawkish bias so that inflation expectations remain in check. Our call is another hike in September."

"EUR/USD still faces downside risks from any new USD bull revamp, but a broadly hawkish tone in Sintra can offer some help on the margin. We remain of the view that the downside can be limited to 1.130, and that we’ll start to see a gradual recovery towards 1.150 in July."

"Elsewhere, we don’t expect the Sintra forum to deliver any dovish tilt by the ECB ahead of a key CPI test on Wednesday. We still expect EUR/USD to climb back to 1.150 in July."

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

United Overseas Bank’s (UOB) Quek Ser Leang notes AUD/USD remains locked in a short-term range between 0.6880 and 0.6920 after a recent impulsive decline. Downward momentum is starting to ease, with a break above 0.6940 seen as signalling that the major 0.6835 support is out of reach. On a 1–3 month view, the bank still flags further downside risk.

Downside phase cools but trend stays negative

"24-HOUR VIEW: We expected AUD to “trade in a range between 0.6880 and 0.6920” last Friday. AUD then traded within a lower range of 0.6875/0.6917, closing 0.30% lower at 0.6890. The price action still appears to be part of a range-trading phase, and we continue to expect AUD to trade in a range between 0.6880 and 0.6920."

"1-3 WEEKS VIEW: We turned negative on AUD on 18 Jun, when it was at 0.7025. We indicated that it “is likely to drop to the month-to-date low, near 0.6980.” AUD subsequently plunged, and in our most recent narrative from last Wednesday (24 Jun, spot at 0.6900), we highlighted that “while the impulsive decline earlier this week suggests further AUD downside, it remains to be seen if the major weekly support at 0.6835 is within reach during this phase of weakness.” Since then, AUD has traded mostly in a range, and downward momentum is starting to ease. A break above 0.6940 (‘strong resistance’ was at 0.6950 last Friday) would indicate that 0.6835 is out of reach. Near-term, 0.6860 is already a firm support level."

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

Deutsche Bank Research’s Jim Reid and team highlight that Brent Oil fell sharply last week as traffic through the Strait of Hormuz increased, easing inflation concerns and rate-hike fears. However, they note Brent is modestly higher today, with Iran-related tensions still fragile despite a tentative de-escalation agreement between the US and Iran ahead of talks in Doha.

Hormuz tensions and inflation implications

"Tensions in the Iran conflict have continued to escalate since Friday, with a series of tit-for-tat strikes around the Strait of Hormuz despite a fragile ceasefire framework. The latest flare-up began with attacks on commercial shipping, prompting successive US strikes on Iranian-linked targets, while Iran responded with missile and drone attacks on US-linked sites in the Gulf, including bases in Bahrain and Kuwait."

"Over the weekend, the conflict intensified further with additional strikes on vessels and military targets, leading to heightened maritime security risks and the Joint Maritime Information Center raising the threat level in the Strait to “substantial.” However, overnight developments suggest a tentative de-escalation, with the US and Iran reportedly agreeing to halt further attacks ahead of renewed technical talks in Doha this week."

"Both sides are said to be standing down for now, allowing shipping flows to continue, although disputes over key provisions of the memorandum of understanding—particularly around control and potential costs for transit through Hormuz—mean the situation remains fragile and risks to regional stability persist."

"The equity sell-off came despite Brent crude prices (-10.65%, -4.34% on Friday) falling back to below their pre-war levels at $71.99/bbl, as flows through the Strait of Hormuz continued to ramp up."

"The oil price decline has eased fears about an inflation shock and aggressive rate hikes."

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